Investment Myth: Cash is ‘Risk Free.’

Sometimes my clients say that they don’t want to take any investment risk by investing in shares, so they will just leave their cash in the bank where it’s safe – where there’s no risk and it’s government guaranteed (within limits of $250k per approved deposit institution).

Let’s put aside that at the moment there is almost no nominal return from cash in the bank or term deposits – you are doing well to get 0.5% currently – and bust this myth.

The risk of cash sitting in the bank is that, put simply, your capital won’t retain its real value and will become worth less in real terms every day. Inflation is quite low right now but is unlikely to remain low. Inflation nibbles away at the true value of cash and reduces how much you can put in your shopping trolley – it gets less every year!

If inflation lifts back up to an average of 4%, cash will halve in real value in 18 years! That’s a 50% loss – now knowing this, you can’t say that cash is risk free!

There is risk involved in everything – you just have to pick what risks you are prepared to take and ensure your decisions are informed. Conversely, without risk there is no return; that’s another blog for the future!
If you’d like to speak with me about what you could do with your savings, or are keen to book a Discovery Meeting, please send me an email and we can discuss:

Article written by Bruce Chisholm – Principal & Financial Planner
Highview Accounting & Financial

Authorised Representative No. 1235025 of InterPrac Financial Planning Pty Ltd Licence No. 246638. Highview Wealth Solutions Pty Ltd Trading as Highview Accounting & Financial
Bruce has written his article for general information purposes only and it does not constitute personal advice. This information has been prepared without considering any individual’s objectives, financial situation or needs.  You should not act solely on the basis of material contained in this article.  We recommend that formal advice is sought which considers all your individual objectives and needs.