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Hewison Insights

Holding cash is getting less and less attractive

Glenn Fairbairn
Director/Private Client Adviser
14 Jun 2016

In February 2015 I wrote a blog titled “Is now the worst time in history to hold cash?” stating that “now is quite possibly the worst time in history to be investing in cash.” At the time, the official cash rate had been cut by the RBA to 2.25 per cent, the first time there had been a rate cut since August 2013. Since then, the RBA has cut the cash rate by a further 0.50 per cent.

My statement on holding cash was obviously premature given that the situation for those holding cash has not improved, it has only worsened and not looking to likely to recover any time soon.

With inflation in Australia sitting at 1.3 per cent, per annum, below the RBAs target of 2-3 per cent, many market observers believe that the RBA is likely to announce two further rate cuts this year, with the first being in August and the second in November. This would take the cash rate from 1.75 per cent to 1.25 per cent and could see home loan rates falling to close to 3 per cent and term deposits to below 2.5 per cent.

What should you do?

While those with home loans are the clear winners from rate cuts, retirees are the obvious losers generating less and less income from their cash. Further, a reduction in the Age Pension asset limit from $1,163,000 to $823,000 (effective from January 2017) together with proposed changes to tax concessions within superannuation, announced at the recent Federal Budget, increasingly add to the financial challenges confronting many retirees.

Although cash investors may think they are sitting pretty when financial markets are volatile, what they quite often fail to understand is that the ability of a company to pay a dividend is not directly correlated to its share price. Similarly, when the value of a property reduces in the short term, rents are not subsequently cut by landlords.

To manage the short term uncertainty and volatility inherent within financial markets, we at Hewison Private Wealth have always developed portfolios with an emphasis on cash flow. Through our experience, a well balanced portfolio should be able to achieve net income of between 4.5 per cent and 5 per cent, per annum.

While the above income returns may seem farfetched in the current interest rate environment, the following ‘balanced’ portfolio shows how these levels of income could be achieved.

So with the cash rate at record low, coupled with a bleak outlook, it may be time to look closely at the overall balance of your portfolio and seek professional advice on how to invest your assets more productively without exposing you to unnecessary risk. Diversification is the key to a stable and successful portfolio.

The information provided above is general information only and does not take into account your personal circumstances. Individuals should seek specialised advice from a qualified financial adviser prior to implementing a strategy based on the above information. Please contact Hewison Private Wealth for more information.


Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.