Cash investment still a value proposition
While experts appear to be urging self-managed super fund (SMSF) investors away from cash and into more growth-oriented investments, Chris Groth, research manager for CANSTAR, believes there may be more to that ‘long-term marriage' with cash than people might think.
"While we do see media-reported frustration from time to time at the amount of cash being held by investors in long-term investment vehicles, it might be useful to understand that while the dollar value of cash holdings has grown, the proportion of cash as part of the overall portfolio hasn't changed all that much over the past nine years," he said.
"In 2004, well before the GFC (global financial crisis), cash, debt securities and term deposits represented approximately 23 per cent of SMSF assets, compared with 31 per cent in direct shares."
Groth added that in December 2012, cash, debt securities and term deposits represented 28 per cent of SMSF assets, again with 31 per cent being held in direct shares.
"That's an increase of only 5 per cent," he said. "It's hardly a ‘wall of cash' and I think it points to cash being a long-term SMSF investment strategy rather than a reactive instinct of frightened investors."
Looking to SMSF statistics, Groth notes that self-managed super funds were expected to reach 500,000 in July, with the Australian Taxation Office receiving a surge of SMSF applications leading up to the end of the financial year.
He said that in dollar terms, the amount invested in SMSFs had increased from $127.4 billion in June 2004 to $474.4 billion in December 2012.
"Certainly in dollar terms, the amount invested in cash is significant," he said. "So it's important for SMSF trustees to ensure that they are getting the best-value return possible for their members.
"With such a large pot of money and our currently-low interest rates, it's understandable that there's a focus on encouraging investors out of cash," continued Groth.
"Looking at the pre- and post-GFC figures though, perhaps there needs to be an acceptance of the fact that, for SMSF trustees, cash is a long-term marriage rather than a short-term fling."
AUTHOR
Staff Writer
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