After reducing interest rates to assist Australia recover from the effects of the coronavirus lockdowns and border closures, the Reserve bank governor Philip Lowe reiterated in June that the bank would not look to increase the cash rate until Australia’s inflation rate is within the banks target range of 2-3 percent. His prediction for when this may occur was 2024 meaning the current record low interest rates of 0.1% will remain for some time.

Cash rates have decreased over the past 30 years from nearly 18% to the current 0.01%

Holding cash as part of an investment portfolio as a way of decreasing the effect of volatility and to fund commitments such as living expenses has always been a prudent part of investment management. In the current environment many SMSF’s have continued to hold large allocations to cash.

Based on data from the ATO, at 31 March this year Self Managed Superannuation Funds were, on average, holding just under 20% of their total assets in cash and term deposits.

While share markets have experienced a record recovery since last year, they will continue to have periods of volatility. At the same time cash balances will continue to produce historically low returns.

Source Market Index. ASX 200 recovery post covid decrease

SMSF trustees and investors will need to consider other types of investment assets and how to balance growth, security and cashflow needs.

We have been working with many clients on exploring how portfolios can be adjusted to provide a good return without taking excessive risk. If you are concerned about the low return on cash holdings and would like to discuss other options, please call the Magnify team on 46 888 000.

Stan Moffatt - Financial Adviser