Sunday
Mar092008
Cash is King! Or is it?
By Jason Fittler
When interest rates are high people fall under the spell of cash. When banks are paying 7.5% on term deposits people move there money into term deposits and think they’re out-performing the market. Cash can be used to reduce the risk of your portfolio if used correctly, if held long term it will hurt you more than any other investment.
If you think you can’t lose money investing in cash, read on.
If you were to invest $100,000, with inflation running at 3% and an average tax rate of 30% the below table shows you the real return you will receive on the investment.
Keep in mind that with an investment in one of the big four banks you would receive 6% after tax and capital growth which has historically out performed inflation.
If you think you can’t lose money investing in cash, read on.
If you were to invest $100,000, with inflation running at 3% and an average tax rate of 30% the below table shows you the real return you will receive on the investment.
Keep in mind that with an investment in one of the big four banks you would receive 6% after tax and capital growth which has historically out performed inflation.
So what does this mean? Cash is a good short term tool to use in time of high volatility in the share market. But be careful how long you keep your funds there as it will cost you money.
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