Historically, Australian investors preferred cash rather than fixed income as the default position for the defensive asset

Historically, Australian investors preferred cash rather than fixed income as the default position for the defensive asset. Australia's household debt to disposable income is at record highs at around 148%. With the decline in the terms of trade, low wages and low returns, income growth will remain low. As a result, monetary policy will have a stronger impact on the economy and won't require large increases in interest rates to have the desired effect on the economy as we have seen in previous cycles. With cash rates low and likely to remain low and term deposit rates falling, Australian investors may start considering increasing their exposure to fixed income. The risk of being so under-invested is a major one that is often ignored and leaves investors exposed not only to a potential fall in the cash rate but also the current low interest rate environment. We discuss further here: (VIEW LINK)