By parking their money in cash, investors are creating long-term problems for their retirement funding, according to a new Russell Investments risk/return analysis.
The analysis compares returns for cash, shares, bonds and property for the past 32 years. It looks at how $1,000 invested on 1 January 1980 would have performed up to 30 June 2012.
Australian shares were the top performing asset class, followed by the diversified portfolio (70 per cent growth), international bonds and then international shares (unhedged). All of the asset classes outperformed cash and inflation over the period.
The results reinforce the point that when it comes to the long-term, cash is "an extremely high-risk asset as it lags all other investment options and leads to shortfalls", according to Russell director of client investment strategies Scott Fletcher.
"The main takeaway from this analysis is that while investors are looking for certainty in the current environment, certainty is expensive," he said.
Investors should stick to medium to long-term investment horizons if they want to avoid volatility, according to Russell's analysis.
"The key is to appropriately diversify across asset classes, investment styles, regions and managers and give growth assets enough time to realise their full value and growth potential. This is a proven way to pass the 'can you sleep at night?' test," Fletcher said.
