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Weighing up cash deposits

Cash in a deposit account doesn't necessarily equate to safety. That's why many investors are shifting to fixed interest securities.

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By any measurement, $2.8 trillion is a lot of money.

Expressed another way, it’s $2,800 billion. And it’s also the amount of money – according to Australian Prudential Regulation Authority data from January 2023 – that’s being held in millions of deposit accounts provided by Australian banks and other authorised deposit-taking institutions.

Separate data from the Reserve Bank of Australia shows that, of the total, roughly $1.6 trillion is being held in transaction accounts.

These are typically ordinary savings accounts providing people (and organisations) with quick access to their money.

A further $1 trillion is in non-transaction accounts – accounts such as term deposits, where you receive a fixed income return for effectively locking your money away for a set period of time.

For the most part, cash held in savings accounts is used for general living and discretionary expenses – to pay for mortgages, rent, food, and other everyday costs.

On the other hand, cash held in term deposit accounts can readily be classified as an investment.

It’s generally put there for periods ranging from six months to anywhere up to five years to earn a higher return than a savings account would earn if the cash was retained over the same period.

The pros and cons of cash

There is a common misconception that cash is a risk-free asset. It’s not prone to daily market volatility like shares are. As noted above, cash in a savings account is also liquid – you can generally get your hands on it quickly and easily.

Furthermore, cash savings up to $250,000 per account holder (including SMSF trustees) on deposit with an Australian authorised deposit-taking institution are guaranteed by the Commonwealth in the event the institution fails.

Yet, cash does have inherent investment risks. Firstly, a decade of record-low interest rates has meant that cash as an asset class has delivered an average annualised income return of just 1.9 per cent since 2012.

That’s lower than any other major asset class. Worse still, after taking high inflation levels into account, real cash returns have been negative for some time.

Bonds as an alternative

Investors wanting to explore other ways to invest their cash, outside of vehicles such as fixed term deposit accounts, may be interested in considering fixed interest securities.

In everyday financial language they’re referred to as bonds.

Bonds are securities issued by governments or companies that they use to borrow money.

Investors buying bonds can expect to receive full repayment of their principal if they hold it until maturity, as well as steady regular interest payments until then (similar to a term deposit).

As such, bonds are generally considered a lower-risk type of investment than shares, which can’t offer any expectations to investors of either full repayment or a steady income stream and which are usually more prone to market volatility.

Likewise, being slightly higher-risk than cash, bonds are generally expected to outperform cash over the long term.

What’s clear is that a growing number of investors worldwide are using their cash to take advantage of higher-returning, relatively low-risk, high-grade bonds, especially government-issued bonds.

That’s showing up in a range of other data, including statistics from the Australian Securities Exchange (ASX) covering monthly inflows into ASX-listed exchange traded funds ETFs that invest in Australian and international bond issues.

ETF bond funds can readily be bought and sold by anyone in the same way as listed shares, simply through any ASX-linked trading platform.

In the latter half of 2022 investment inflows into ASX-listed bond ETFs ($2.2 billion) actually exceeded the inflows into ASX-listed Australian shares ETFs ($1.6 billion) – that’s rare.

What’s attracting investors into bonds?

Three main factors have led to the increased, and accelerating, inflows into bond products around the world.

1. Higher interest rates

Rising interest rates have lifted the yields available to investors on new and existing bond issues. That makes bonds more attractive to investors seeking higher steady income streams.

Vanguard forecasts global bonds to return 3.9-4.9 per cent and domestic bonds to return 3.7-4.7 per cent over the next decade.

2. Higher capital growth

Once inflation levels fall back, it’s likely that central banks will start cutting interest rates.

Lower interest rates will likely translate to higher bond trading prices. This is another key attraction for fixed income investors with a longer-term horizon.

3. Improved portfolio diversification

Lastly, the traditional role of bonds in investment portfolios is to provide asset class diversification to help smooth out total investment returns over time.

While bonds do not generally outperform riskier asset classes such as shares over the long run, they typically have a more stable return profile because they are not prone to the same level of market volatility.

Expect to see more investors use bonds to capitalise on higher interest rates, lower bond prices, and the potential price upside from markets.

This may see a reduction in the relatively high amount of cash currently being held by many investors in low-yielding financial institution accounts.

 

 

 

Tony Kaye, Senior Personal Finance Writer
vanguard.com.au

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Hamish Zerbe

Hamish Zerbe

Hamish Zerbe
Financial Adviser / Director

Hamish has been working within the Financial Services industry for over 20 years and has been providing holistic financial advice to clients for over 16 years.

Prior to the establishment of Adelaide Private Wealth in 2014 Hamish worked as a Financial Adviser with one of Australia’s leading Banks after which he worked with many of his existing clients as a Principal in one of Adelaide’s larger Genesys Wealth Advisers businesses.

Over the years Hamish has become a specialist in the areas of portfolio management, personal protection, retirement planning and is an Accredited Direct Equities and SMSF Adviser. He is passionate about partnering with clients to manage their financial affairs effectively, giving them the confidence and time to pursue the lifestyle they wish.

Hamish holds a Diploma of Financial Advice and a Master of Commerce with a major in Financial Planning. He is also a member of the Royal Association of Justices of South Australia Inc and a member of the Association of Financial Advisers (AFA).

Hamish lives in Goodwood with his wife and is a proud father of three young boys. He enjoys playing golf, following AFL, reading and gardening in his spare time.

Ben Newbold

Hamish Zerbe

Ben Newbold
Financial Adviser / Director

Ben has 21 years of experience in the financial planning industry. He has worked for large institutional banks, boutique advice firms and has been delivering holistic advice solutions to clients for more than 19 years.

Ben prides himself on exceeding expectations and providing quality education to his clients around their financial matters, enabling them to make sound and informed decisions.

Ben provides expert and detailed advice in the areas of superannuation, retirement, wealth creation, insurance and Centrelink. He also provides specialist advice in Aged Care strategies to help maximise benefits and minimise aged care fees.

Highly qualified in financial matters Ben holds a Diploma of Financial Planning, a Bachelor of Banking and International Finance and is both an Accredited Direct Equity and SMSF Adviser. He is passionate about using the knowledge he has built up to help clients get to where they want to be.

Outside of work Ben is heavily involved in sport, and is a proud Life Member of both Unley Football Club and Sacred Heart Old Collegians Cricket Club. He enjoys spending any spare time with his wife and chasing after their three children.

Mark Humphris

Hamish Zerbe

Mark Humphris
Financial Adviser / Director

Mark has been involved in the financial services industry for 21 years and has a wide array of experiences that he draws on in giving great advice. Mark believes strongly that personalised advice and guidance together with a very high attention to detail provides clients with the best opportunity to meet their financial and lifestyle goals.

Mark is a strategic thinker and specialises in helping clients initially review and build the right asset and debt structures, before providing detailed advice in the areas of superannuation and investments, cashflow management, family protection and insurances and Centrelink strategies. Mark has had great success in helping people identify and implement opportunities to adjust their cashflow, assets and liabilities to prepare and transition into a great retirement without any financial stresses.

Mark holds a Diploma of Financial Planning, Bachelor of Business (Banking and Finance) and is Listed Security accredited.

When not at work Mark spends time with his young family, enjoys attending sporting events or a quick getaway to the family farm on weekends.

General Advice Disclaimer

Information provided on this website is general in nature and does not constitute financial advice.

Adelaide Private Wealth will endeavour to update the website as needed. However, information can change without notice and Adelaide Private Wealth does not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time.

Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial adviser to take into account your particular investment objectives, financial situation and individual needs.

Adelaide Private Wealth does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, Count Financial Limited and its employees do not accept any liability for any error or omission on this web site or for any resulting loss or damage suffered by the recipient or any other person.

Unless otherwise specified, copyright of information provided on this website is owned by Count Financial Limited. You may not alter or modify this information in any way, including the removal of this copyright notice.

Terms & Conditions - Hamish Zerbe

This website is operated by Hamish Zerbe & Associates Pty Ltd, ABN 40 573 262482. We are an authorised representative of Count Financial Limited, an Australian Financial Services Licensee. These are the terms and conditions for use of this site and access to the information contained on this site.

  1. We and our authorising licensee:
    1. do not give any warranty or make any representation as to the accuracy, reliability, completeness or security of the information contained on this site and as to changes in circumstances after the date of publication that may impact on the accuracy of the information;
    2. may change and update the information from time to time;
    3. make no representation in relation to, and are not responsible in any way, for the content of any other site you access via this site; and
    4. own the copyright in the information on this site.
  2. Users must not use or reproduce any of the trademarks that appear on this site.
  3. Users of this site must not:
    1. do anything to alter or modify the information on this site;
    2. use the material on this site for any purpose other than as a source of information for personal use unless authorised to the contrary;
    3. distribute, copy or otherwise reproduce in any way any of the material available from this site unless it is expressly authorised;
    4. post any material which is defamatory, in breach of copyright, in breach of the Trade Practices Act or otherwise in any way unlawful or inappropriate.
  4. Users can print a hard copy of material on this site for their personal use only other than material where this is prohibited by a notice to that effect on this site.
  5. The information contained on this site is made available to residents of Australia and its territories and is not intended to be a recommendation, offer or invitation to take up securities or other investments.
  6. We and our authorising licensee are not liable in any way to any person for any loss, damage, cost or expense incurred as a result of the material contained on this site or from unauthorised access to, or any misuse of this site including, without limitation, any negligence by us.
  7. All references on this site to “$” or “dollars” are references to Australian currency unless otherwise stated.
  8. Users of this site agree to indemnify us and our authorising licensee from all liability, cost and expense, (including legal fees) arising directly or indirectly from the use or distribution by any person of material placed on the site by the user or from the alteration, modification of or addition to material on the site by the user.
  9. We and our authorising licensee do not endorse and are not responsible for information, feedback, questions or comments placed on this site by third parties. We can reproduce, use, disclose and distribute the information to others in our absolute discretion.
  10. Links to other sites are provided for your convenience only. Any such links do not constitute or imply endorsement or recommendations of any other company, product or service or any affiliation between us and other organisation (unless otherwise expressly stated).
  11. You consent to us monitoring your use of this site.

Terms & Conditions - Ben Newbold

This website is operated by Ben Newbold & Associates Pty Ltd, ABN 82782076621. We are an authorised representative of Count Financial Limited, an Australian Financial Services Licensee. These are the terms and conditions for use of this site and access to the information contained on this site.

  1. We and our authorising licensee:
    1. do not give any warranty or make any representation as to the accuracy, reliability, completeness or security of the information contained on this site and as to changes in circumstances after the date of publication that may impact on the accuracy of the information;
    2. may change and update the information from time to time;
    3. make no representation in relation to, and are not responsible in any way, for the content of any other site you access via this site; and
    4. own the copyright in the information on this site.
  2. Users must not use or reproduce any of the trademarks that appear on this site.
  3. Users of this site must not:
    1. do anything to alter or modify the information on this site;
    2. use the material on this site for any purpose other than as a source of information for personal use unless authorised to the contrary;
    3. distribute, copy or otherwise reproduce in any way any of the material available from this site unless it is expressly authorised;
    4. post any material which is defamatory, in breach of copyright, in breach of the Trade Practices Act or otherwise in any way unlawful or inappropriate.
  4. Users can print a hard copy of material on this site for their personal use only other than material where this is prohibited by a notice to that effect on this site.
  5. The information contained on this site is made available to residents of Australia and its territories and is not intended to be a recommendation, offer or invitation to take up securities or other investments.
  6. We, our authorising licensee are not liable in any way to any person for any loss, damage, cost or expense incurred as a result of the material contained on this site or from unauthorised access to, or any misuse of this site including, without limitation, any negligence by us.
  7. All references on this site to “$” or “dollars” are references to Australian currency unless otherwise stated.
  8. Users of this site agree to indemnify us and our authorising licensee from all liability, cost and expense, (including legal fees) arising directly or indirectly from the use or distribution by any person of material placed on the site by the user or from the alteration, modification of or addition to material on the site by the user.
  9. We and our authorising licensee do not endorse and are not responsible for information, feedback, questions or comments placed on this site by third parties. We can reproduce, use, disclose and distribute the information to others in our absolute discretion.
  10. Links to other sites are provided for your convenience only. Any such links do not constitute or imply endorsement or recommendations of any other company, product or service or any affiliation between us and other organisation (unless otherwise expressly stated).
  11. You consent to us monitoring your use of this site.

Terms & Conditions - Mark Humphris

This website is operated by Strathmore Nominees Pty Ltd, ABN 65 218 962 870. We are an authorised representative of Count Financial Limited, an Australian Financial Services Licensee. These are the terms and conditions for use of this site and access to the information contained on this site.

  1. We and our authorising licensee:
    1. do not give any warranty or make any representation as to the accuracy, reliability, completeness or security of the information contained on this site and as to changes in circumstances after the date of publication that may impact on the accuracy of the information;
    2. may change and update the information from time to time;
    3. make no representation in relation to, and are not responsible in any way, for the content of any other site you access via this site; and
    4. own the copyright in the information on this site.
  2. Users must not use or reproduce any of the trademarks that appear on this site.
  3. Users of this site must not:
    1. do anything to alter or modify the information on this site;
    2. use the material on this site for any purpose other than as a source of information for personal use unless authorised to the contrary;
    3. distribute, copy or otherwise reproduce in any way any of the material available from this site unless it is expressly authorised;
    4. post any material which is defamatory, in breach of copyright, in breach of the Trade Practices Act or otherwise in any way unlawful or inappropriate.
  4. Users can print a hard copy of material on this site for their personal use only other than material where this is prohibited by a notice to that effect on this site.
  5. The information contained on this site is made available to residents of Australia and its territories and is not intended to be a recommendation, offer or invitation to take up securities or other investments.
  6. We and our authorising licensee are not liable in any way to any person for any loss, damage, cost or expense incurred as a result of the material contained on this site or from unauthorised access to, or any misuse of this site including, without limitation, any negligence by us.
  7. All references on this site to “$” or “dollars” are references to Australian currency unless otherwise stated.
  8. Users of this site agree to indemnify us and our authorising licensee from all liability, cost and expense, (including legal fees) arising directly or indirectly from the use or distribution by any person of material placed on the site by the user or from the alteration, modification of or addition to material on the site by the user.
  9. We and our authorising licensee do not endorse and are not responsible for information, feedback, questions or comments placed on this site by third parties. We can reproduce, use, disclose and distribute the information to others in our absolute discretion.
  10. Links to other sites are provided for your convenience only. Any such links do not constitute or imply endorsement or recommendations of any other company, product or service or any affiliation between us and other organisation (unless otherwise expressly stated).
  11. You consent to us monitoring your use of this site.

Disclosure - Hamish Zerbe

Hamish Zerbe and Hamish Zerbe & Associates Pty Ltd, ABN 40 573 262 482, trading as Adelaide Private Wealth are Authorised Representatives of Count Financial Ltd ABN 19 001 974 625 AFSL No. 227232 which is 85% owned by CountPlus Limited ABN 111 26 990 832 (CountPlus) of Level 8, 1 Chifley Square, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 8, 1 Chifley Square, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. The information on this web page is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances.

Disclosure - Ben Newbold

Ben Newbold and Ben Newbold & Associates Pty Ltd, ABN 82 782 076 621, trading as Adelaide Private Wealth are Authorised Representatives of Count Financial Ltd ABN 19 001 974 625 AFSL No. 227232 which is 85% owned by CountPlus Limited ABN 111 26 990 832 (CountPlus) of Level 8, 1 Chifley Square, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 8, 1 Chifley Square, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. The information on this web page is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances.

Disclosure - Mark Humphris

Mark Humphris and Strathmore Nominees Pty Ltd, ABN 65 218 962 870, trading as Adelaide Private Wealth are Authorised Representatives of Count Financial Ltd ABN 19 001 974 625 AFSL No. 227232 which is 85% owned by CountPlus Limited ABN 111 26 990 832 (CountPlus) of Level 8, 1 Chifley Square, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 8, 1 Chifley Square, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. The information on this web page is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances.