Ask Paul: Our school P&C raised $40k, where should we invest it?

Dear Paul,

Our school parents and citizens group has raised $43,000 and we have it locked in a term deposit at 0.5%.

Is this a good idea or are savings accounts offering better interest rates at the moment?

Are there better investments we should look into? – Amanda

While you and many of your fellow parents are probably rejoicing at the incredibly low mortgage rates, Amanda, the problem is the other side of the coin.

I was not sure whether to laugh or cry when, at interest rates of between 18.75% and a low of 6%, we finally paid off our mortgage and we now find rates dropping to historic lows, seeing us with no mortgage to enjoy low rates and earning next to nothing on our cash.

This is the challenge of our times. Very cheap money has meant booming house prices, which makes it so hard for people to get into the market. But it also greatly impacts investors.

For your P&C, and all investors, the only way you can earn more is to take more risk. The only sensible way to manage risk is time.

Many of us can take a five- to seven-year view, or longer, and hold quality assets like shares. But I suspect your P&C needs access to funds.

So, sadly, in my view you are restricted to low-return, safe investments. If you were okay with a medium-term view, say three years, you could consider an income-type fund, but again even that will be subject to some risk.

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