We recently met with two couples at different stages of their working lives. One couple is fully retired and has $500,000 cash in term deposits. The other couple is currently 15 years away from retirement and has $300,000 cash in term deposits. Both couples also have investment portfolios in each of their names, with shares invested across Australian and global companies.
Of course, both couples also have super funds. But here’s the bit that shocked them: when we looked at the super asset allocation (that is, how their super fund invests their money), we noticed they were invested in a mix of balanced and conservative funds. What that means is that a lot of their money is held in a fairly large amount of cash and fixed interest. So in essence, both couples were ‘doubling up’ on cash – not only did they have cash in the bank, but also as part of their super.
This is the case for many people – they simply just don’t know it. The problem with cash is that it doesn’t earn you a whole heap of interest. In fact, right now, it hardly earns you anything at all.
For these couples, while some of their money was ‘working for them’ (which is what you want), doubling up on cash really serves them no purpose.
In reality, having cash in term deposits is great as a back-up in times of market volatility, while money invested in shares has a job to grow over the long term.
What we told the two couples, and the takeaway message from this, is that having a pot of money as an emergency back-up is a good idea, but the money in your super should be working hard for you all the time and not just be sitting in cash.
