We should talk about Cash!

We should talk about your Cash!

When you have worked hard to create a reasonable nest egg the last thing you want is to see it lose value in real terms because you are holding it in cash deposits of one form or another. We are all too well aware of the fact that interest rates right now are at an all time low and even negative in some instances ——- the banks are actually charging you to hold on to your money!! The longer you hold your money in cash the more value it will lose, particularly when inflation is taken into account. “There’s too much uncertainty right now” or “I’ll put off investing for now until I see how things are going” are views we often come across. While it’s completely natural to feel uncomfortable about moving to active investments, you are after all transitioning from a position of comfort to one that involves risk, there are many options available that help to mitigate the risk involved. Keeping money on deposit comes at a cost. In essence that cost is no growth. Take a look at the illustration below: image

We are looking at €100,000 invested over a 10 year period from now. €148,024 represents a gross targeted return of 4% per annum from a diversified portfolio while €97,360 represents the end value based on current interest rates. €120,000 is the value your investment needs to grow to if we assume inflation of 2% per annum.  There are a few key takeaways to highlight here:The value of compounding means that with a 4% growth rate your savings have jumped by 48% over the 10 years.There is a 52% difference at the end of the period between the cash deposit and the diversified portfolio.Taking inflation into account your cash savings have lost 23% of its “real” value.Equating Risk with Reward There has always been risk associated with every asset class even cash, as illustrated above where it is actually losing value in front of your eyes. Past history, however, shows us that over any 10 year period multi-asset funds have never made a loss and both Equities and Bonds which make up most of the holdings of multi-asset funds have significantly outperformed cash. Take a look at this:

Past Performance of Cash Sector vs Managed Balanced Sector from 24th March 2011 to 29th March 2021. Source FE FundInfo Balancing Risk and Reward There is no suggestion here that you should immediately transfer all your cash holding into high risk assets in order to boost your investment return. Risk and reward need to be balanced against your attitude to and capability to accept risk bearing that there are also relatively low risk options that may not produce the highest returns but are geared to at least match inflation over a given period.

 Let’s have that conversation 

Hopefully there is enough evidence here to convince you to at least consider alternatives to holding all your savings in cash. We would be very pleased to look at your particular situation and to make a suitable recommendation to you. Why not initiate that chat. Call us or drop me a line hugh@rouseinsurance.com

Warning: Past performance is not a reliable guide to future performance.

Warning: The value of your investment may go down as well as up. You may get back less than you invest.