Are you debating how or why you should invest cash currently sitting in an at call account or in a term deposit?
It was only 18 months ago that holding cash generated little to no return. Recent research shows that individuals, families and not for profit organisations are keeping large cash reserves…in cash. A common rationale is that the outlook for assets (such as property, shares, and defensive income producing assets) is uncertain, and cash is safe and at least it’s earning some level of return.
When reviewing cash balances, critical questions to consider include:
Are cash rates of return high enough?
Are cash rates attractive when we compare them to other assets?
When we factor in inflation does the real return still make an investment in cash worthwhile?
More often than not, the answers to these questions highlight investing outside of cash leads to better long term returns and overall portfolio outcomes.
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