News flash: Interest rates are just 2.5%.
Property prices are too high, say economists.
Inflation is 3%, and…
Bank stocks are down.
So what's an investor supposed to do?
Are we expected to suck it up and continue making 3% or 4% per year on our money in a term deposit or bank account? Whilst inflation takes away 3% and income tax takes away the rest?
One alternative for investors has been to take money from their cash accounts and invest in 'Big Four' bank stocks, which yield well over 5%.
But even they don't seem safe in the current market, with each falling between 4% and 7% in the past month. There are some alternatives though.
Macquarie Group Ltd (ASX: MQG) has been the only big bank to survive the recent sell-off. Probably because it is a global investment bank with significant exposure to the US recovery, as well as the non-stop growth of Asian economies. Although Macquarie is leveraged to rising investor confidence throughout global markets, I'm wary about buying its stock in the middle of a bull market because leverage works both ways.
Woodside Petroleum Limited (ASX: WPL) is another alternative to falling interest rates. Shares in the oil and gas giant currently change hands on a forecast dividend yield over 6%. However with what appears to be a somewhat expensive share price coupled with falling oil and gas prices, I'd be hesitant about buying Woodside stock on the market today.
Similarly, Rio Tinto Limited (ASX: RIO) shareholders have witnessed the price of iron ore fall hard throughout 2014. As Motley Fool contributor Claude Walker wrote here, iron ore stocks could outperform the market in the long run, but if you're looking for a reliable dividend income then Rio clearly isn't worth the risk.
Almost all other iron ore miners will fall by the wayside before Rio's Pilbara mining operations become unprofitable. However investors who consider buying in now must be willing to hold the stock for the ultra-long term because commodity super cycles take a long time to turn around.
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Whilst blue chip stocks may appear to be a suitable alternative to low-interest rates and inflation, it's important to note the stock market is no place for money which will likely be needed within five to seven years. That's especially true for companies like Macquarie, Woodside and Rio, which could face downward pressure in the near future.
