Investors are exposing themselves to negative real rates of return, as 40 per cent of investors have their investable assets in cash, according to State Street Global Advisors’ exchange traded fund (ETF) business, SPDR.
However, if investors had an adviser they typically held less than 30 per cent of their portfolio in cash, the firm said.
Those investors who held 40 per cent in cash found it was predictable, simple, tangible and safe. But they needed to be more aggressively positioned to achieve their longer-term goals of retiring or buying a home.
This represented an opportunity for advisers, who could reshape ‘the cash conversation’ and determine what investment options actually reflected investors’ goals.
“While many planners recommend an emergency fund equal three to six months of a client’s fixed and variable expenses, investors needed to realise that holding excess amounts in cash is an investment decision, which has its own set of risks.”
The business’ findings were published in a practice management paper, ‘Are you leaving cash on the table’. It also found that 40 per cent of investors said they would become more aggressive over the next 10 years to prepare for retirement, while 23 per cent said they would not take any new financial steps.
Investors said purchasing land or property was their best investment to date, followed by stocks and bonds. However, investors needed to understand that the interest received in a bank was often exceeded by the rate of inflation.
That meant that the actual purchasing power of cash would decrease. “These supposedly safe assets can actually harm investors in the long-run,” the report said.
