3 May 2012

As interest rates continue to fall, investors who are currently sitting on large cash positions are slowly but surely starting to look to higher yielding investments to supplement their income.   This is particularly true for self funded retirees such as those with self managed super funds (SMSFs). The “weight of money” theory suggests that this can lead to its own momentum through a positive feed back loop – that is, as investors start to move from cash to equities, share prices rise which lends more confidence to investors who are then more inclined to buy shares – and so it goes. Whether this happens early in the recovery cycle or in the latter stages is the subject of much debate – see this take on the argument by Don Stammer writing for the Australian.