Growth, dividend stocks, and even Bitcoin: What Livewire readers plan to buy when the RBA finally cuts rates

Since the Reserve Bank's most recent interest rate hike in November 2023, the entire country has been waiting with bated breath for the answer to the next question: When will they finally cut interest rates?

It was - if you believed the economists, the strategists, and history - meant to be last year. But with every inflation and unemployment print, those hopes were dashed. But coming into 2025, two things seem clear: the first rate cut will likely come before the end of the first half of 2025 (possibly even before the election) and the number of cuts will likely cap out at three. 

So with these two things in mind, we asked thousands of Australian investors the following question: If the RBA cuts rates in 2025, what would you buy? The varied and eclectic answers to this question are the subject of this wire.

How much cash do readers have?

Before we can get into a conversation about what you would buy, we first have to ask how much spare cash you have to begin with. The answer, according to our survey, is not all that much. Nearly 40% of respondents said that they had between 0-10% of their portfolio in cash. Another 1,000+ respondents say they have between 11-20% of their portfolio in dry powder. Only 67 of the 4,700+ respondents said they are running an all-cash portfolio. 

Now, let's look at the top responses to the main question of this wire.

1) Growth stocks, including small caps

Nearly half of respondents to this question, which is over 2,300 of you, said you'd be interested in buying growth stocks when the RBA begins to cut interest rates. This makes a lot of sense given the RBA's rate cuts would lower the cost of servicing debt. 

Plenty of growth-oriented companies need this debt to finance their expansion plans. And with more than 1800 survey respondents saying they plan to lighten their exposure to the richly-priced banks in the coming year, that money's got to find a home somewhere!

For some ideas with this in mind, have a look at these two pieces already released as part of the series. One features our team asking 10 hand-picked fundies for their top growth stock picks for 2025 while the other piece features gun small-cap fundie Arden Jennings sharing his personal picks for the year ahead:

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The #1 growth stocks set to explode in 2025

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4 compelling reasons to add small companies in 2025

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2) Dividend equities

More than 30% of you said you'd look at dividend-paying equities as part of your strategy. As central banks cut rates, the days of 5% term deposits will become numbered. In addition, while interest rate cuts may make some stocks (e.g. the banks) look less desirable, other sectors like REITs/infrastructure, utilities, and high-yield plays become very attractive. 

Plus, as this chart shows, returns for stocks that can grow their dividends tend to outperform after rate cuts. No wonder following a dividend aristocrat strategy is so profitable! If you are unfamiliar with the concept of Dividend Aristocrats, read the hyperlinked article.

This is also a pertinent vote-getter because February reporting season is around the corner. With the All Ordinaries dividend yield sitting at well below its long-run average, reporting season will likely shed some light on which companies can continue to deliver above-average income. To get ahead of February reporting season as an income-oriented investor, you would be wise to read this piece from Carl Capolingua:

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How to invest in ASX dividend stocks, plus the dividend stripping strategy

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3) Income-focused funds (Active Funds, LICs, ETFs)

More than 20% of respondents said they would be looking to add income-oriented exposure through investment vehicles like active funds, LICs, and ETFs. If you chose this option, you can access the Livewire Find Funds feature to find some ideas from our database of over 700 managed funds, LICs, LITs, and ETFs.

4) Alternatives - including Bitcoin

Alternative assets like infrastructure and REITs received more than 800 votes. Higher interest rates have traditionally been viewed as a negative for the performance of long-duration investments, like infrastructure. So any whiff of rate cuts is great news for this part of the market - as highlighted in this 1-year performance chart of the ASX REITs index (+20% in the last 12 months.)

But of course, REITs or infrastructure assets are not the only part of the alternatives universe. There were also nominations for other alternative assets like gold, unlisted private equity, as well as numerous mentions for Bitcoin and the wider crypto universe. In a market environment where 2022 was hard to forget, it seems the appetite for finding uncorrelated assets remains strong.

And finally... the crowd doing nothing

It would be remiss if we didn't acknowledge the response that actually received more than 1200 votes: the 'no change'/'I'll just ride out lower rates' option. This may be an option picked for a few reasons. 

There are no doubt many investors are happy, or at least, comfortable with their current portfolio. Some may have already moved their money ahead of time and are just waiting for the cuts to take effect. And of course, others are waiting for more information. After all, if you followed the consensus last year and moved a lot of money ahead of a 2024 rate cut, you would have been left a little out in the cold. 

Whatever your reasons may be, just remember that the art of doing nothing is as important as the art of doing something when the facts change. 

Appendix: The full results