Cash Not As Safe As It Seems
Sun Herald
Sunday August 24, 2008
SECURITY is a wonderful thing. And nothing is more secure than cash; particularly after you've seen your equity holdings or managed funds dwindle away in the recent market turmoil. After all cash will always be there at the end of the day, so there's nothing wrong with liquidating your holdings while things are a bit rocky and keeping it in a cash account.
Well, actually there might be, particularly at the moment when it's pretty much certain the next move by the Reserve Bank of Australia is going to be down. They may not have publicised it, but some banks have already cut the interest on their term deposits and those juicy 8 per cent rates on online savings accounts will become a thing of the past.But there are other reasons not to put all your funds in the cash basket, although in the interests of diversity you should always have some cash holdings.The thing is cash doesn't do anything. You earn interest but, even when cash rates are high, so is inflation and that erodes a good chunk of your earnings (4.5 per cent at the moment).So where should you be looking if you want security and solid returns? At the moment, some fixed interest is definitely worth consideration. True, it was credit that caused the credit crunch and scared so many people off fixed interest investments - but the highly engineered, poorly rated corporate bonds were the main culprits. There are still some good quality investments with reasonable returns and good yields.Government paper is offering just as much as online savings accounts but for much longer. David Bryant, managing director of Australian Unity Investments, says the difference is like being offered the option of 8 per cent overnight or 8 per cent for five years. I know which one I'd take.Australian Unity part-owns fixed interest manager Vianova Asset Management, whose bond fund has been returning in the vicinity of 8 per cent over the past 12 months. Most bond funds these days invest in a mix of corporate and government bonds but you still want to steer clear of those with a heavy bias to company debt. Just because something is cheap, which it is now, doesn't make it a good investment.
© 2008 Sun Herald
