Investors’ love affair with cash heading for heartbreak

term-deposits/australian-unity/commonwealth-bank/market-volatility/investors/australian-unity-investments/equity-markets/interest-rates/

27 August 2012
| By Staff |
image
image
expand image

Investors’ love affair with cash could be heading for heartbreak if they don’t diversify, according to the head of Australian Unity Investments, David Bryant.

Having some investment in cash products such as term deposits may be sensible for some investors, but only as part of a balanced diversification strategy, he said.

Furthermore, Bryant believes using cash as a so-called ‘safe haven’ is an increasingly unsound strategy given the market environment.

“Falling interest rates and inflation combine to reduce both the value of capital and income – exactly what investors seeking a ‘safe haven’ are trying to avoid,” Bryant said.

Hoarding cash comes at a huge opportunity cost, he added, with fixed interest funds having performed better than term deposits in the past four years.

“For example, if an investor had deposited $10,000 in a one-year term deposit in June 2008, and reinvested maturity proceeds along the way, this would have increased in value to $12,519 by June 2012,” Bryant said.

“However, if an investor bought $10,000 of CBA shares in June 2008 it would be worth $18,819 including franking credits in June 2012 – and we have seen even more increases in share market value in the last couple of months.”

While there is still volatility in equity markets, and although markets are still experiencing frequent falls, there seems to be an underlying trend upwards, which Bryant believes investors should factor in when rebalancing their portfolios.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

1 month 4 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months ago

Entireti has unveiled the new name for the AMP financial advice businesses that it acquired last year....

3 weeks 5 days ago

A Sydney financial adviser has been permanently banned from providing any financial services, with the regulator deriding his “lack of integrity, trustworthiness and prof...

2 weeks 4 days ago

Minister for Financial Services, Stephen Jones, has provided further information about the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms....

1 week 3 days ago

TOP PERFORMING FUNDS