Risk warning for investors

The Retirement Commissioner fears investors will run to high interest-paying products without considering the risks after another cut to the official cash rate.

Yesterday Reserve Bank Governor Alan Bollard dropped the rate by 0.5 per cent to 3 per cent, putting downward pressure on bank deposits, which have already halved since this time last year. The commissioner, Diana Crossan, said while the rate cut was smaller than previous ones, it would hit investors' income.

"There is no getting away from the fact that things are going to be tight for the next year to 18 months."

But she warned those facing dwindling returns to do their homework before putting their money into products offering higher rates of return.

"People need to look beyond the advertising. Don't be blinded by the offer of a high rate of return," she said.

Crossan said people needed to be aware it was a low interest rate environment and any product where the interest was more than the banks' would also be a greater risk.

Those faced with a reduction in their income should tighten their belts and take stock of their income and outgoings. Other steps people could take depended on their personal circumstances. "It depends on how much money you have. If it's a lot of money, go to a financial adviser but be careful how you choose one."

Crossan said those seeking advice should check the adviser's disclosure document and consider whether they were product pushers.

Those on a low income could seek help through going to a budget adviser or their local Citizens Advice Bureau.

One way of getting self-help was to go to the commission's website, www.sorted.org.nz, where it has has added tips for investors to its range of resources.

Mark Lister, head of research for financial advisory group ABN Amro Craigs, said investors no longer had the luxury of putting their money in the bank and getting a high return for low risk.

"People have seen their returns on income just fall through the floor."

Lister said his firm had noticed a significant increase in people seeking investment help over the past couple of months, many for the first time.

Lister said investors were flocking to corporate bond products, such as the one recently released by Fonterra that attracted more than $800 million of investors' money.

"That is phenomenal and is reflective of a lot of cash looking for a home."

Shares with high dividends were also becoming very attractive.

"The reality is people are having to look at shares - they have to take more risks if they want to maintain their income."