As we move further into 2025, many investors who have traditionally relied on cash and term deposits are facing a challenging reality: interest rates continue to fall, eroding the value of these once-reliable investment vehicles. If you're holding significant cash reserves or have term deposits maturing soon, you may be wondering how to maintain your financial security without sacrificing returns.
The Cash Conundrum
Term deposit rates have been steadily declining, with forecasts suggesting further drops on the horizon. For conservative investors who value stability and predictable income, this trend presents a genuine dilemma. While cash offers security, it may no longer provide sufficient returns to meet your financial goals or keep pace with inflation.
In recent years, term deposits were a dependable choice for many investors, offering competitive returns with minimal risk. They provided a reliable source of income, making them an attractive option if you were seeking stable returns. But as we move through 2025, market conditions have shifted dramatically. Term deposit rates have fallen—and are forecast to fall further—raising legitimate concerns for anyone relying on them to grow wealth, preserve capital or maintain current income levels.
The good news? There are alternatives that can offer both the security you value and the potential for better returns.
Finding an equilibrium with Conservative Funds
For investors seeking to move beyond cash without taking on significant risk, the ACI Conservative Fund represents an appealing middle ground.
This fund is specifically designed for investors who prioritise capital preservation while still seeking modest growth potential.
What Makes the ACI Conservative Fund Different?
Unlike traditional term deposits that rely solely on interest rates, the ACI Conservative Fund employs a diversified approach that carefully balances several investment types:
High-quality bonds that provide regular income payments while offering slightly higher returns than term deposits.
Selective equity exposure for growth potential, carefully limited to manage volatility.
Cash components that maintain liquidity and stability within the portfolio.
As a Portfolio Investment Entity (PIE) fund, the ACI Conservative Fund also offers significant tax advantages for medium through to high-income earners and trusts. Your investment income is taxed at your Prescribed Investor Rate (PIR), which is capped at 28%—potentially lower than your personal income tax rate which is applicable to anyone earning over $48,000. This tax efficiency means you keep more of your returns compared to other investment vehicles, providing an immediate advantage over term deposits where interest is typically taxed at your full marginal tax rate.
This combination of diversified structure and tax efficiency helps protect against market fluctuations while positioning your investment to capture returns from multiple sources—a crucial advantage in today's low-interest environment.
The Benefits of Making the Switch
Moving some of your cash holdings to a conservative fund like ACI offers several advantages:
1.Enhanced Income Potential
While maintaining a conservative approach, the fund aims to deliver returns that outpace current term deposit rates through its diversified income streams.
2.Professional Management
The fund is actively managed by investment professionals who continuously assess market conditions and adjust the portfolio accordingly—something that's impossible to achieve with static term deposits.
3.Flexibility and Accessibility
Unlike term deposits that lock in your money for a fixed period, the ACI Conservative Fund offers better liquidity, allowing you to access your investment when needed and with no penalty or cost.
4.Inflation Protection
The modest growth component helps protect your savings against the eroding effects of inflation—a critical consideration for long-term financial security.
Real-World Success
Many clients have already made the transition from cash to the ACI Conservative Fund with positive results. Locally Grant & Douglas Optometry LTD share their experience:
"We've been entrusting our business reserves to ACI Conservative Fund for the past two years, and it's proven to be an excellent decision. Not only have we seen better returns compared to keeping cash, but the funds have maintained impressive liquidity - we've been able to access our money within just three days whenever needed. It's been a smart financial move for our business."
This real-world example highlights two key benefits: improved returns over cash holdings and the practical liquidity that businesses and individuals need for financial flexibility.
A Thoughtful Transition
Making the move from cash to a conservative fund doesn't need to be an all-or-nothing decision. Many successful investors maintain a portion of their portfolio in cash for immediate needs while allocating the remainder to more productive investments like the ACI Conservative Fund.
This balanced approach provides both the security of cash and the growth potential of diversified investments—creating a more resilient financial strategy for today's economic landscape.
The Importance of Expert Advice
Developing a strategy that transitions some of your cash assets to a conservative fund requires thoughtful planning. This is where expert advice becomes invaluable. A financial adviser can assess your specific situation—your risk tolerance, income needs, and time horizon—to help you determine the optimal allocation between cash and the ACI Conservative Fund.
Professional guidance is particularly important in this low-interest rate environment, as making the most of your investments involves exploring options beyond traditional choices like term deposits. An adviser can help you understand exactly how the ACI Conservative Fund works and how it might perform under various market conditions compared to your current cash holdings.
Adapting to Market Realities
The declining interest rate environment we're experiencing is unlikely to reverse in the near term. This means that relying solely on term deposits to grow wealth or generate income may no longer be sufficient for most investors. The ACI Conservative Fund, with its diversified approach and professional management, offers a compelling alternative that maintains much of the security you value while opening doors to better potential returns.
Taking the Next Step
The most effective investment strategies are those that adapt to changing market conditions while remaining aligned with your personal goals. For many conservative investors, this means reconsidering an all-cash approach in favour of a more diversified strategy.
By taking a proactive approach now, you can position your investments to weather changing economic conditions while supporting your long-term objectives. The ACI Conservative Fund provides a manageable first step beyond cash that doesn't require taking on excessive risk.
For personalised advice on how the ACI Conservative Fund might fit into your investment strategy, connect with one of our experienced advisers today. There is no cost or obligation to explore these options, and our team can help you determine the right balance for your specific situation and goals, ensuring your financial future remains secure even as market conditions evolve.
For further information please refer:
ACI Funds website: https://acifunds.co.nz/
ACI Conservative Fund Factsheet as at December 31, 2024 : https://acifunds.co.nz/wp-content/uploads/2025/01/ACI-Funds-Conservative-Factsheet_Q4-2024.pdf
Paula Enticott is a Financial Adviser at Stewart Group, a Hawke’s Bay and Wellington-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver scheme solutions. Blog No 7.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
