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August 2020

Is cash a safe and steady investment?

In times of uncertainty many people want to play it safe, and cash is most often than not the default. So, when it comes to investing super for those people who want a less aggressive asset allocation in exchange for more stability and security, the cash investment option is a suitable option.

Right now, however, cash rates are very low - the Reserve bank of Australia’s cash rate target is an historically low 0.25%. That’s well under the targeted rate of inflation of 2.5%. Plus, when you take into consideration the operational costs of running a cash account and, the very low rates banks are offering for cash it doesn’t create the best environment for returns, and because of that cash returns may not provide the security they once did.

To help visualise, the chart below shows Vision Super returns from being in the cash, Australian fixed interest and Australian Shares over the last 25 years.

Cash graph 

What the chart shows is by investing in cash you get a very smooth return with no volatility. On the other hand, there is only slow growth in cash balances over the long term, which makes the cash option the most likely of all investment options to produce the lowest return.

Whereas if looking at Australian shares (the green line) we see a lot of volatility. Sometimes the return drops way down in a very short period of time but over the longer term it has gradually outpaced cash and fixed interest, even after big dips in performance.

Please note though that past performance is not an indicator of future performance.

Super is a long-term investment. Keeping that in mind, cash (for which the investment time frame is short-term (0 – 3 years)) may not be the right investment if you are looking for higher returns. Even when taking into consideration short periods of volatility like during the GFC or the recent pandemic.

Switching investment options

To get the most out of your investment strategy it’s important to maintain consistency. Though if your circumstances change it’s important to review your investment options and make sure they continue to be right for you.

If you review your investment strategy and believe the options you are invested in no longer suit your needs, it’s recommended you get financial advice before you do anything. You will find most super funds don’t charge switching fees, so there should be no impact on your super account balance from switching between investment options.

Investment advice

If you are a Vision Super member you can receive advice at no cost from our financial advisors on single topics relating to your Vision Super account – like what investment option suit your needs - to help develop a strategy tailored for you.

Details on Vision Super’s investment options can be found here

You can easily become a member of an award winning, sustainable superannuation fund. All you have to do is head to love.visionsuper.com.au and become a member today.

  

General Advice Warning
This article includes general information and does not contain any personal advice. It is provided to help you understand Vision Super’s products, services, policies and procedures. The information was correct at the time of publication, but may have changed since. It does not take into account your personal objectives, financial situation or needs. You should consider whether it is appropriate for you and your personal circumstances before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in any Vision Super product, you should read the appropriate Vision Super Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Vision Super Pty Ltd ABN 50 082 924 561, AFSL 225054 RSE Licence L000239 is the Trustee of the Local Authorities Superannuation Fund ABN 24 496 637 884. Level 15, 360 Collins Street, Melbourne VIC 3000. PO Box 18041, Collin Street East VIC 8003.

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