Chasing yield during very low interest rates.

It seems to me that investors everywhere are constantly chasing yield, whether in stocks, property or junk bonds etc.

This has led to most assets being fully priced or overpriced. It seems to me the key is discipline and patience. Yes that cash sitting in the bank is depreciating in real terms due to the crazy low term deposit interest rates. But with some patience, we know that assets won't keep going up forever and that there will be a correction.

The danger is that the low interest rates tempts everybody into burrowing heavily to chase capital gains and/or yields. When downturns come or IR increase, this can prove disastrous to those that were highly leveraged during the abnormally low IRs.

I would say if I find something still worth investing that would add value, then I would go for it just the same.. just being mindful of the above ^^^

It seems to me to chase for yield is reaching levels of desperation for many.

 

I tend to think its the masses chasing capital growth that pay to much and drive up prices rather than those chasing yields. If you want cash-flow from high yields you'll only pay a price that reflects an acceptable cash-flow.

I agree with your warning on over borrowing and money sitting in say an ING account will hold its own against inflation.

 

A lot of these high yields only appear to be high yielding on surface. For example junk bonds, because once you examine the underlying assets/going concern backing these securities, you realize even that 6% yield is way too low for the risks entailed.

 

Well said !

 

Agree. Syd and Melb are too hot and too risky being yields are so low. We have purchased property in some regional towns that are offering yields of around 10-11%. May not get the capital growth but with the returns we are getting and steady fundamentals in the town the flats are paying themselves off as well as providing great cashflow on the side.

 

You are exactly right. Cash is a pretty good investment right now and may well produce great returns if put to use at the right time. My cash holdings are at historical highs for this reason.

Having said that, there are still some good investments to be made in various assets in various markets. The key is to keep looking and carefully assess and to manage risk.

 

Actually, even better you will get the capital growth. For example Sydney over the next 5 years might be 4%, 1%, -5%, - 11%, -10% whereas your places might be slow but steady 5%ish pa on average next 5 years. Who has done better? Wait and see...

 

Smart money already in and out, yields woeful and perhaps too close to peak.?

 

Correct. There is also, as always, high yield assets. There are properties in metro Melb (can't speak for Syd) that yield 15% (which I am dabbling in).

The key is looking beyond the very very narrow subset/comfort zone that each person is used to.

 

If you continue to jump into rising markets you will do better than waiting for markets to rise

 

Depends on how the asset in the "rising market" is valued and when in the cycle you are entering. The more it's overvalued and the later in the cycle, the more you risk losing money as a "rising market" by its nature will no longer be rising once it starts to trend toward fair value (which will as a matter of economic certainty occur).

I can give many many examples of people who bought into "rising markets" only to lose big time when the market turned.

Tulip mania - Wikipedia