Beyond Savings: Grow Your Wealth with Investment Strategies That Beat Inflation

Savings accounts are a great safety net for emergencies and short-term goals. However, with inflation still over 3.3%, that money in a savings or term deposit could be costing you money.

A 4-5% return from a bank savings account might seem like a good return. In this article, we will analyse what your real rate of return is and look at the alternatives.

Last week, the RBA revised its inflation forecast to 3.3%, lower than the predicted 3.9%.

The central bank expected Australia’s economy and inflation to slow faster during 2024 as households cut back on spending after back-to-back interest rate hikes and soaring living costs.

While lower inflation and interest rates on deposit accounts are at higher levels not seen for some years, it pays to look beneath the surface.

The real rate of return

If a bank savings account in Australia pays an interest rate of 5% per year, and the inflation rate is 3.3% each year, the real rate of return is around 1.7%.

This means the investment’s value is only growing by 1.7% each year.

The breakdown

Nominal Rate of Return: This is the number advertised by the bank, which is typically around 4-5% per annum.

Inflation Rate: This is the annual increase in the cost of goods and services. In the RBA example, it’s 3.3%.

Real Rate of Return: This is the nominal rate adjusted for inflation. It reflects the actual purchasing power of your investment return.

Here’s the formula to calculate the real rate of return:

Real Rate of Return = 4.5% (or take the average of 4.5% and 5% = 4.75%) – 3.3%. The Real Rate of Return = 1.2% (or 1.45%)

Since the real rate of return (1.2% or 1.45%) is lower than the inflation rate (3.3%), your money’s purchasing power is decreasing over time.

In other words, even though your savings account balance might show a nominal increase, you can buy fewer goods and services with that money due to inflation.

The fact that your investment is barely keeping pace with inflation means you’ll be worse off.

For this reason, you must consider the real rate of return when you’re looking at your investment’s performance.

The Bottom Line

Keeping money in a savings account might feel safe, but its value is eroding due to inflation.

Alternatives to bank deposit accounts

Here’s a guide to alternative investment options for different age groups, keeping risk tolerance and time horizon in mind:

Age Group: 15-35 Years Old (Young Investors)

  • Focus: Growth and Long-Term Wealth Accumulation.
  • Risk Tolerance: Generally higher due to a longer investment horizon for long-term goals like retirement.

Investment Options

  • Individual shares: A basket of listed stocks including financial, resources, biotechnology, or technology stocks is a popular method. Stock selection is up to the individual investor.
  • Investment Platform Apps: Automated investment platforms like Raiz create and manage portfolios tailored to your goals and risk tolerance, often emphasising growth-oriented ETFs (Exchange-Traded Funds). They can range from Conservative to Aggressive to mixtures of stocks, bonds, and property. They typically require minimal investment amounts and offer a convenient, low-maintenance approach. There’s also a Kids getting started investment option.
  • ETFs Tracking Growth Sectors: ETFs that track specific sectors like technology, clean energy, or innovation can provide exposure to high-growth areas of the market. Look for ETFs with low expense ratios to minimise fees that eat into your returns.

Important Considerations

  • Higher Volatility: These options generally involve greater price fluctuations compared to savings accounts. Be prepared for potential short-term dips but focus on the long-term growth potential. Don’t panic-sell during downturns; a long-term perspective is key.
  • Research and Due Diligence: Educate yourself about the companies, sectors, or ETFs you’re investing in. Don’t blindly follow trends.

Age Group: 35-50 Years Old (Mid-Career Investors)

  • Focus: Balancing Growth with Income and Stability
  • Risk Tolerance: As financial responsibilities increase and retirement nears, a more balanced approach becomes prudent.

Investment Options

  • Individual shares: A basket of listed stocks including financial, resources, biotechnology, or technology stocks is a popular method. Stock selection is up to the individual investor.
  • Investment Platform Apps: Automated investment platforms like Raiz create and manage portfolios tailored to your goals and risk tolerance, offering curated investment alternatives. As above, they typically offer a convenient, low-maintenance approach.
  • Dividend-Paying Stocks: These companies distribute a portion of their profits to shareholders regularly, providing a steady income stream alongside potential capital appreciation. Look for companies with a history of consistent dividend growth.
  • Bond Funds: Bonds offer lower volatility than stocks and provide regular interest payments. Consider a mix of investment-grade government and corporate bonds to manage risk. Explore bond funds with short to moderate maturities to minimise interest rate risk.
  • ETFs with a Mix of Growth and Income Potential: Several ETFs offer exposure to a combination of growth stocks and dividend-payers, allowing you to balance capital appreciation with income generation. Look for ETFs with a diversified mix of assets and a focus on long-term growth.

Important Considerations

  • Gradual Shift Towards Conservative Investments: As you approach retirement, consider gradually allocating more towards bonds and other lower-risk assets to preserve capital. This will help reduce portfolio volatility closer to retirement.
  • Do your own research: Craft your personalised investment strategy based on your specific needs, risk tolerance, and retirement goals.

Age Group: 50-80 Years Old (Nearing or In Retirement)

  • Focus: Capital Preservation and Income Generation
  • Risk Tolerance: Generally lower as you retire and rely more on your investment income.

Investment Options

  • Individual shares: A basket of listed stocks including financial, resources, biotechnology, or technology stocks is a popular method. Stock selection is up to the individual investor.
  • Investment Platforms: This is a fast-growing area as it is a low-cost, low-maintenance option for investors too busy with family, health, and career.
  • Dividend-Paying Stocks: Focus on established companies with a history of reliable dividend payouts to generate income for your retirement. Look for companies in stable industries with strong financials.
  • Investment-Grade Bonds: Prioritise high-quality bonds with minimal default risk to ensure a steady stream of income with lower volatility. Consider government bonds and short-maturity corporate bonds for maximum safety.
  • Income-Focused ETFs: These ETFs invest in assets specifically chosen for their high dividend yields, maximising your income generation potential. Look for ETFs with a focus on low fees and diversification across various income-producing assets.

Important Considerations

  • Minimise Risk: Prioritise strategies like diversification and periodic rebalancing to minimise portfolio volatility and protect your retirement nest egg. Consider a consultation with a financial advisor to develop a risk-reduction strategy.
  • Stay Informed About Tax Implications: Retirement accounts often have tax advantages. Consider consulting a financial advisor to optimise your investment strategy for tax efficiency, especially regarding withdrawals in retirement.


This is a general educational guide and does not take into account your investment objectives.

Regularly review your portfolio and adjust your asset allocation as your circumstances and risk tolerance evolve.

Don’t be afraid to seek professional guidance, especially as you approach retirement. A financial advisor can help you navigate investment decisions and ensure you’re on track for your retirement goals.



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