Unfortunately, this group will probably be disappointed.
Many investors are using term deposits and savings accounts as their ongoing investment strategy, with many commentators calling cash a safe haven.
However, ‘safe haven’ is little more than a throwaway term given to an asset investors flee towards when they feel nervous.
There’s never been a safe investment haven because every asset class holds its own specific risks, cash included.
One of cash’s most prominent risks will be on show when the RBA hands down its interest rate decision.
Cash has no capital appreciation, so investors are entirely dependent on the income it generates.
Right now that income rests on an interest rate that appears to be shifting downwards.
Interest rate expectations can be gauged by the 30-day interbank cash rate futures traded on the ASX.
Since early September the market has been pricing in cuts to the official rate, with the expectation of a 0.5 per cent cut this year and another 0.5 per cent cut next year.
This would put rates at 2.5% by mid 2013.
While you can still expect a better rate at the bank, it would appear cash is reverting to its long term status of underperforming all other asset classes.
Even at current rates the data backs this up; the ASX 300 Accumulation is up 6.7% this year, listed property up 22.9% and fixed interest up 5.8%.
These returns are the reason $10,000 invested in cash 30 years ago would have only grown to $116,916, while a balanced portfolio surged to $228,149.
Of course throughout those 30 years, there were periods of economic turmoil that made cash appear a safe haven.
Yet a flight from perceived risk to perceived safety only left investors enjoying the risk of lower returns.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re the best financial adviser in Australia.
