Term Deposits vs. Bonds: An Investment Review by GIM Trading's CIO, Dylan Walsman

As investors explore opportunities in a fluctuating interest rate environment, term deposits and bonds often come into focus. GIM Trading's Chief Investment Officer, Dylan Walsman, provides a fresh perspective on whether term deposits remain attractive or if bonds present a better alternative for long-term growth.

Are Term Deposits Still a Safe Bet?

With term deposit rates hovering around 5% at some banks, many investors are drawn to their simplicity and low risk. "For investors seeking a safe place to park their cash, term deposits are still a viable option," says Walsman. However, the potential downside is limited flexibility. "Term deposits lock your funds for a set period, which may not align with more dynamic market conditions."

The predictability of term deposits is appealing, especially with short-term yields offering more stability. But Walsman warns of opportunity costs. "While term deposits are a solid short-term option, investors should remain cautious as they miss out on potentially higher returns from other asset classes like bonds or equities."

Bonds: A Preferred Alternative

Walsman explains that, although bonds have faced challenges, they offer unique advantages for certain market conditions. "Bonds have been in a bear market, but that doesn’t mean they aren’t a valuable tool," Walsman emphasizes. "With yields rising, now might be the right time to explore bonds as an alternative to term deposits."

The current yield on a 10-year Australian government bond is approximately 4.42%. Although this rate is lower than some term deposits, Walsman sees long-term potential. "Bonds historically provide better returns during recessions or periods of deflation," he notes. "Moreover, corporate bonds and private credit options may offer higher yields, albeit with added risk."

The Shift Toward a 60/40 Portfolio

For investors who are wary of putting all their eggs in one basket, Walsman advocates for a balanced portfolio approach. "A mix of equities and bonds offers a diversified strategy that can outperform fixed-term investments over time," he explains. "The 60/40 portfolio model has stood the test of time, even as bond markets struggle."

Walsman also points to the changing dynamics in bond and equity correlations. "We’re seeing a return to positive correlations between these two asset classes, meaning that bonds no longer act as a hedge against falling stock markets. This shift may impact how investors approach portfolio construction moving forward."

The Verdict: Should Investors Shift to Bonds?

While term deposits offer security and consistent income, Walsman suggests that bonds might be the better choice for those with a higher risk tolerance and longer investment horizons. "Investors who are looking for growth should consider moving beyond term deposits. Bonds are becoming more attractive, especially corporate and hybrid bonds, which can provide higher returns," he advises.

Ultimately, the decision between term deposits and bonds depends on the investor’s financial goals. "Term deposits are great for short-term parking of funds, but bonds offer better potential for those looking to capitalize on current market shifts," says Walsman. "The key is aligning your strategy with both your risk tolerance and your investment timeline."

Final Thoughts: Balancing Stability and Growth

As interest rates continue to fluctuate, Walsman believes it’s important for investors to stay adaptable. "At GIM Trading, we recommend a diversified approach that includes bonds for long-term growth while keeping term deposits as a stable income generator in the short term."

With market conditions in flux, Walsman stresses the importance of professional advice. "Every investor’s situation is different, and we are here to help clients navigate these complex decisions," he concludes.

For those considering their next steps, consulting with GIM Trading’s financial advisors is the best way to ensure that both short-term and long-term goals are met in this evolving market.