While today’s RBA’s rate cut was expected, the question yet to be answered is whether it will lead to the dismantling of the great ‘wall of cash’ currently held by SMSFs and retail investors. The cut in interest rates from 4.25% to 3.75% today will see increased pressure on cash – an asset class that has been a stand-out favourite since the GFC due to highly competitive interest rates and investors’ lack of confidence in the market. However, today’s move by the RBA is likely to encourage investors to reconsider their current portfolio holdings.
According to RaboDirect, the leading online savings and investment bank, today’s move further highlights the importance of SMSF Trustees ensuring they are getting the best rate from their cash – 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. At such a time it’s vitally important that their SMSF is supported by flexibility, choice and easy access to both quality cash options and other forms of investment such as managed funds.
SMSFs currently have 28.74 per cent allocated to cash holdings – far higher than the 15 per cent figure for the broader superannuation sector (according to Dec ATO and the latest Westpac research). At the same time, Investment Trends research put cash holdings even higher for retail investors, at closer to 30 per cent. This means the SMSF component forms a significant proportion of the industry’s ‘wall of cash’
Today’s rate cut means more pressure on cash and may well trigger a market rally as investors seek to re-weight their portfolios
As SMSF Trustees consider what is best for their investment, the importance of having a first-class cash-hub product with market-leading rates is undeniable
Tim Hewson, Investments Manager, RaboDirect Australia and New Zealand said:
“Regardless of what happens in the market, the cash hub remains central to any SMSF. When interest rates fall it is even more important that investors get the most from it. This means due diligence is required on the part of the Trustee to ensure they are maximising returns.
“A typical SMSF investor is attracted by features such as control and choice. This means they need easy access to a range of products and services to be able to effectively and efficiently transition and reweight their portfolio when required. RaboDirect offers SMSF Trustees a range of competitive online savings and term deposit options, as well as access to wholesale investment funds designed to deliver Trustees with choice and flexibility.
“At the very least, today’s 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. 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.”