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BlueChip Communication recently held its inaugural ‘Asset Wars’ event, at which a panel of five financial services clients put the case for ‘their’ asset class before a group of media and industry peers, who voted for the ‘winner’ via the audience-fired ‘clapometer’. Here we give you a summary of the case for cash.
Greg McAweeney, from RaboDirect took to the stage in high spirits, but some trepidation, acknowledging immediately that the current anaemic cash rate of 3% was unlikely to do his work for him.
He played his trump card early, catering to everyone’s love of cash by offering a bribe, in the form of a lucky envelope full of cash, concealed under each seat.
When the audience’s shocked faces alerted Mr McAweeney to the fact that they were seeking substance not stunts, he swung into action, going on the attack immediately by declaring ‘cash is king’, and why wouldn’t it be, when so much super has been decimated by allocations to other, riskier asset classes.
He backed up his case for cash by appealing to the audience’s perceived altruism, or maybe it was more their self-interest, by arguing that an allocation to cash not only gives a risk-free return but also benefits the economy at large, increasing savings, reducing the banks’ reliance on wholesale funding, and cutting the cost of capital for everyone.
He then moved into the cold hard facts, pointing out that actual returns from SMSFs with a large portion of their funds in cash had already outstripped those with ‘riskier’ assets, so really, why invest in the riskier assets at all?
Mr McAweeney then returned to his trademark humour, pointing out that transparency is one of RaboDirect’s core values, and as such he would like to share with the group that recent returns from managed funds have perhaps been less than spectacular. Returns from cash alone have in fact been stronger – in average terms.
He went on to say that, despite the anticipation of a prolonged period of economic uncertainty, we were unlikely, unfortunately, to see the death of equities as an asset class.
He acknowledged that economic cycles come and go, and that equities were very much tied to these, but said that investors facing retirement with decimated super were unlikely to care too much about cycles. The fact that that the current low return environment might be a ‘blip’ in the longer term history of investment returns gives pretty cold comfort in retirement.
He then gave an explanation of the current global economic malaise, saying that we are all now experiencing a monster hangover following a debt binge and poor investment decisions. Quantitative easing isn’t working. Austerity isn’t working. All things considered, it’s just not looking that good.
“Equities are way too risky in the current environment, but a term deposit can give you up to 6%, pretty well risk-free,” he said.
Mr McAweeney concluded by acknowledging that time honoured tenet of investment, that equities will likely return more over the longer term than cash.
But, he said, “we all know that it is time in the market rather than timing that matters, and who can you really trust to pick stocks for you. And how much time do you have?
“Why on earth would you risk being at the bottom of the cycle when you need to access your money for retirement?
“If you are looking for solid risk-free returns, cash is still king,” he said.
Greg McAweeney is Executive Manager of RaboBank International Direct Banking here in Australia and New Zealand – more popularly known as RaboDirect. In recent years RaboDirect has made a significant name for itself in the cash space: providing high interest savings accounts and term deposits to Australian investors.
