With current interest rates declining by another 50 basis points, one would think that the argument for fixed interest shares would not be worth reciting. The stable investment with a set return rate is now earning even less than before, yet the stock market exodus continues. Nearly 50% of the R789bn total investment collective is being invested in these fixed interest unit trust funds at the end of the second quarter.

Despite stocks beating returns on cash comfortably for the year to date-June, only 23% of the abovementioned R789bn collective was invested into Equity funds directly, according to the Association of Savings and Investments SA.

Investors are choosing the safety of bank accounts and fixed interest funds which are able to provide comfort amidst uncertain global markets. However many warn that this may be a dangerous game for investors on a whole but particularly older investors.

The common denominator is that investors overlook inflation and view stock market volatility as the biggest threat to their retirement capital. These fears may seem somewhat premature with inflation seemingly stable at the 6% mark for this year, however according to Schalk Louw of Contego Asset Management, 2011 will mark a serious change. Citing above-inflation salary increases, Eskom’s 25% electricity price hike and higher commodity prices as issues fueling the inflationary furness.

“In a world in which inflation could become the primary concern over the long run, one of the asset classes of choice will be cheapish equities; especially those that have pricing power and hence can grow profits ahead of inflation and pay attractive dividends”, said Shaun le Roux of Alphen Asset Mangement in a recent report.

It seems that investors with longer time frames should look at investing in the stock market which has for all its ups and downs not suffered a loss for any rolling five year period in the last century.

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