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RBA Decision changes cash dynamics

RaboDirect has questioned whether cash can remain king in the minds of self-managed superannuation (SMSF) fund directors in the wake of last week’s Reserve Bank of Australia (RBA) decision to cut interest.

Referring to a great “wall of cash”, RaboDirect said that the cut in interest rates from 4.25 per cent to 3.75 per cent would see increased pressure on cash – an asset class that has been a stand-out favourite since the global financial crisis (GFC) due to highly competitive interest rates and investors’ lack of confidence in the market.

However, it said that the RBA’s move was likely to encourage investors to reconsider their current portfolio holdings.

According to RaboDirect, the rate drop further highlights the importance of SMSF trustees ensuring they are getting the best rate from their cash, an asset which remains the hub of the majority of SMSFs. It also raises questions about reallocation and the best move forward for SMSF investors, who may find themselves facing more decisions about investment than they’ve been used to since the GFC. Tim Hewson, RaboDirect Australia and New Zealand investments manager, said that regardless of what happened in the market, the cash hub remained central to any SMSF.

“When interest rates fall it is even more important that investors get the most from it,” he said. “This means due diligence is required on the part of the Trustee to ensure they are maximising returns.” For Hewson, a typical SMSF investor is attracted by features such as control and choice, a fact which mandated easy access to a range of products and services so that they could effectively and efficiently transition and re-weight their portfolio when required.

At the very least, this rate-cut should act as a wake-up call for SMSF Trustees and encourage them to look under the bonnet of their portfolio to make sure they are suitably invested in products that suit the needs of their members,” he said.

“And if they aren’t, they should shop around to find a product that delivers them with better interest rates, lower fees, flexibility and greater control.”