The Reserve Bank of Australia slashed interest rates below 1 per cent for the first time last week to 0.75 per cent. Big banks announced those cuts would be partly passed onto customers.

The city's financial advisers say investors, particularly retirees, have moved money from cash and term deposits into riskier investments that offer dividends.

But Silvan Ridge principal Steve Harris said the Australian market had become expensive and reached 12-year highs in July while also becoming more volatile.

"For mum and dad investors the difference is we have never seen cash and fixed interest rates at this level," Mr Harris said.

"We have to be more innovative in what we do to get a reasonable return without excessive risk.

"The flip side for mums and dads is they have low borrowing rates, so it's a very good time to be paying as much as possible off personal debt."

Morgans Financial Planner Les Batchelor said many ASX-listed companies had become "overpriced".

He said term deposits paid between 1 and 2.25 per cent while costs of living increased by about 3 per cent a year, causing some investors to seek income from dividends.

"People are buying in at the top of longer-term valuations for income from dividends, without considerations of what their valuations will be in the medium-term," Mr Batchelor said. "They will be the first ones to suffer with any correction, and there will be a correction at some point."

He said advisers helped clients decide if "a significantly higher risk" was worthwhile.

READ more: Volatile share market puts pressure on retirees

Independent Retirees Warrnambool branch president Bill Hewett said retirees were spending less of their discretionary income.

"Discretionary things like holidays are going to be slowed down, that's going to have an impact on the economy," he said.

He said while members were forced to take increased risk, he warned them against taking high risk.

"There was a time when they used to advise, if you had a sum of money, you put your age as a percentage into fixed interest or cash. That's a silly strategy now, because it doesn't maintain the cost of living," Mr Hewett said.

"People investing in the stock market need to look into the long-term of lower yields, and think about the overall return.

"More retirees are being forced to take more risk and it's the ones who are taking the risk and don't understand the size of the risk that are the biggest problem."

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