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Written by Matt Kirk Published: May 6 2020 Investments
Cash investments remain popular in these volatile times but that’s no reason to settle for a low interest rate.
Self-managed super fund (SMSF) owners are well aware of the need to earn the highest returns they can and many also want to preserve their capital.
Investment in term deposits (TDs) offers certainty when the global political and economic outlook is clouded and markets are nervous.
Many of the professionals are increasing their cash holdings. The Wall Street Journal earlier this year reported that US pension and mutual funds had been turning back to cash, which it interpreted as a sign of growing stress in financial markets.
The Journal calls the return to cash an “ultradefensive stance” and notes pension funds are holding cash because they have to pay a growing number of baby boomers tapping into retirement savings.
Fund managers are opting for the comfort of cash because they cannot see an end to increased volatility in other markets.
This should give SMSF owners pause for thought. Most will hold a variety of assets, including property and shares. A term deposit holding is a defence against movements in other investments because the return is known and the amount invested will not fall.
Interest rates are low but TD earnings are reliable and the investor knows their capital will be returned at maturity. At that point they can switch to a better term or interest rate, withdraw the interest or some of the capital, or reinvest for another term.
It’s one of the simplest ways to invest and provides peace of mind and an element of certainty for SMSF owners during periods of instability in financial markets.