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Investment Strategies

Why are you holding cash?

By AMP Capital

Recent research shows that SMSF investors are holding more cash than they would prefer – an average of $110k more, in fact. This article explores the reasons, considerations for investors and the opportunity cost..

It’s a question a lot of investors have had rattling around in their heads for the best part of the last two-years while concerns about a correction have lingered and share market valuations have continued their march upwards.

Since the start of 2016, until the share market peak in early February this year, the major share market indices in the United States and in Australia rose 33 per cent and 14.5 per cent, respectively.

During this two-year period, self-managed superannuation funds have held on to record levels of cash, opting to park large amounts of investable savings on the sidelines, thereby opting out of what’s turned out to be a profitable tail to a long and mature bull market. In the latest AMP Capital survey of over 600 SMSFs, it was found that investors are holding an average of $110,000 in cash that would normally be invested in other assets.

In mid-2017, total SMSF cash balances reached close to 20 per cent, according to research from SMSF administration provider, SuperConcepts.

In recent months this group has begun to draw down to reinvest some of this capital however; the decrease in SMSF cash levels during the last quarter – the largest decrease since June 2015, according to SuperConcepts – resulted in SMSFs mostly increasing their international and Australian share market allocations, the research shows.

Source: SuperConcepts

Whichever way you look at it, cash is weighing heavily on the minds of investors, considering both the proportion of cash SMSFs hold relative to the value of their overall portfolios, as well as the opportunity cost of sitting on the sidelines.

Dr Shane Oliver, AMP Capital’s Chief Economist questions why SMSFs are doing this.

At a time when interest rates are at historically lows levels, it’s important for investors to simply ask themselves  ‘why am I holding cash?’.

“If it’s for the income, you could argue there are better alternatives,” Oliver says.

Both unlisted assets and assets listed in share markets and elsewhere; corporate debt, some reliable dividend-paying shares, commercial property funds all have the potential to generate reasonable income, Oliver notes.

“But if you’re just holding that cash because you can’t sleep at night, then fair enough, stay in there,” he says. The latest AMP Capital research showed that many investors are concerned about the changing regulatory and geopolitical environments.“

Just be aware, over the last five-years, a mix of shares, property, and so on would have generated a return of about 10 per cent compared to the 2-3 per cent you’ve been getting out of cash,” Oliver adds.

So, if the average SMSF held $110,000 in cash over this 5-year period that would’ve otherwise been invested, this equates to almost $50,000 in missed returns – which raises the question – can you afford to sit on the sidelines?

  • Investment Strategies
  • SMSF News
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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