entry into the market.
A report by Russell Investments said there had been flows into cash larger than during the Global Financial Crisis (GFC) and investors may have had to re-enter at high levels as the market recovered.
Unlike in the GFC when interest rates consistently remained above 4%, they were now only 0.1% which meant investors were effectively paying the bank to hold their cash.
For an investor with a portfolio of $250,000, switching to cash on 15 March, 2020, and not re-entering the market could have lost them $17,500 over the period. Meanwhile, Australians increased the cash in their bank accounts by 12% between March 2020 to March 2021 which accounted for an extra $124 billion in cash in banks.
According to FE Analytics, over one year to 31 July, 2021, the cash sector returned 0.24% while the cash enhanced sector rose 0.66% within the Australian Core Strategies universe. This compared to returns of 28% if they had invested in the ASX 200.
The situation was also a problem for super funds as SuperRatings found those in a balanced or growth super account who switched to cash last March could be up to $27,000 worse off (based on a balance of $100,000).
Bronwyn Yates, director at Russell Investments, said: “Some people are hoarding cash for security and the RBA has had to issue...