The Reserve Bank of Australia (RBA) has set the current cash rate at 0.75%, with many pundits expecting rates to go even lower in the future.

With the return from cash at an all-time low one would question whether cash is the right investment or if there are other options available? Despite this, recent data from the ATO reveals that self-managed super funds hold on average 32% of their assets in cash and term deposits. This equates to around $171 billion sitting in cash!

In nominal terms, cash is the ultimate defensive asset; it does not go down in value. But when we factor in the effects of inflation, holding cash for the long term can be counterproductive.

If cash is returning 0.75% per annum, and inflation is 2% per annum, then the real return on your cash is -1.25%; that’s right, you are actually losing money.

In comparison, the income return on a diverse investment portfolio, consisting of a range of assets from Shares to Property and Fixed Interest assets, would be expected to be around 5% per annum. This is more than six times the cash rate!

While it is important to point out that growth assets like shares and property are a riskier investment than cash; if you are careful to minimise risk by diversifying your portfolio, and you plan to invest for the longer term, then history shows that the capital value of your investment should grow over time, further increasing the rate of return.

If you, or someone you know, need to review their financial plan and investments, please CONTACT US at Hewison Private Wealth to speak with an Adviser.