Cash is King! It’s a catchcry we often hear in the financial media. But is Cash really King?

After slashing interest rates during the Covid Pandemic, over the last two years the Reserve Bank of Australia (RBA) has lifted interest rates from a low of 0.1% to its current level of 4.35%.

With the return from cash increasing, one would question if cash is the best investment or if there are other options available?

Interestingly, cash investments make up a large portion of self managed super fund (SMSF) holdings, with data from the ATO revealing that SMSF’s hold 17% of their investments in cash and term deposits. This equates to around $150 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 longer term can be counterproductive. Inflation is a real concern in Australia and around the World. Australia’s current inflation rate is 3.6 per cent, and while this is lower than the high of 7.8 per cent in December 2022 it is still too high in the eyes of the RBA who target an inflation rate of 2 per cent to 3 per cent.

With the current cash rate only just above inflation, the real return on cash is quite low.

In comparison, a diverse investment portfolio, consisting of a range of assets from Shares to Property, as well as Fixed Interest assets, would be expected to provide income of around 5% per annum, plus capital growth.

While it is important to point out that growth assets like shares and property are a riskier investment than cash; you can minimise risk by diversifying your portfolio and investing for the longer term. If you are able to do this, 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 may be interested in reviewing their financial plan and investments, please contact us at Hewison Private Wealth to speak with an Adviser.