Is your cash making you poorer?
You know the phrase, “asset rich, cash poor”? It’s never been uttered in a more provocative environment. Even if you’re generally flush with cash, cash as an investment type is hamstrung these days by the central bank cash rate, meaning you’re poorer than you need to be.
Let me say it straight. Cash, right now, is kinda useless as an investment. Rates are about as low as they can go (or are they?) so any cash investments still held are no longer helping your cause. That’s presuming the cause is wealth creation. Cash investments are simply not delivering the returns and the low risk profile that have made them popular for so long.
And it’s also part of the reason, alongside market improvements and the historical reliability of real estate in underpinning wealth creation, that buyers are getting back into property. In a big way. In fact, Australians are taking up new mortgages at the fastest pace in more than three years.
As I heard one bank exec say this week, “It’s not just about pent-up demand by owner-occupiers. It’s a sign the property market is seen as a safer, stronger place to put your money.”
Meanwhile, low interest rates mean saved cash is all but asleep as an asset class. When you compare that to real estate, there’s a compelling case to reconsider where your money goes this year. Pundits are expecting Sydney and Melbourne house prices to climb by more than 10 percent in 2020. Hello? Ten percent. If they’re right, this could be a double-whamming with the ability to lend easier than the last couple of years and the borrowing a hell of a lot cheaper. Excuse my language.
The upside is that existing cash investments - now broadly dormant and underperforming - can easily be repositioned as your property deposit. And apparently, plenty of people are seeing it that way too: focusing their investment strategy on property with the recent upturn in the market, and the gradual downward movement in the cash rate. Home loan approvals have climbed for seven straight months to be 21 percent higher than May, a sign that the latest cash rate cuts are stimulating the market as intended, and a sign that property is very much back in favour as an investment category.
The government is trying to make this achievable too, announcing their intention to deliver policies and economic conditions to make property ownership a reality for Australians.
Even first-home buyers are taking advantage of the circumstances, with their approvals up by 21 percent over 12 months.
[Did you know? Average new loan sizes for owner-occupiers hit a new peak of $516,000 recently.]
[Did you know? It’s most residents, not investors, driving the uptick. According to The Australian, the boom in home loans has been driven by owner-occupiers who are dominating new home loans. Meanwhile investors have only become slightly more active over the same period.]
When cash rates are low like they are now, it’s common practice for investors to move their positions out of cash and fixed interest products and into higher yielding share or property investments. Is this a movement you need to consider?
Don’t become poorer with cash, let’s get it working for you...