Should I have my super in Cash? The Cash option has a very low risk level when measured over the short term. However, if you intend to stay invested in this option for a longer timeframe, you should consider whether the current low returns will be enough for your situation.
To help protect your retirement savings in a falling market, one important thing you can do is to minimise any withdrawals from your super or retirement income account. This means you can reduce the need to sell your investment assets and keep more of your money invested, giving the market time to recover.
2 – It is highly likely your superannuation balance will return to where it once was. An economic recession is historically linked with a downturn in equities (shares) and the housing market. These are assets that most superannuation funds have a lot of money invested in.
Benefits of Holding Cash
There are definitely some benefits to holding cash. When the stock market is in free fall, holding cash helps you avoid further losses. Even if the stock market doesn't drop on a particular day, there is always the potential that it could have fallen—or will tomorrow.
Moving your portfolio from stocks to cash is an understandable instinct when savings rates are high and there are concerns about a possible recession. But it's important to remember that stock market investments are part of your long-term plan, and selling could have tax implications.
Stock Market Performance In 2023
U.S. stock market gains in the first half of 2023 have been rosier than some entire years in the past. This alone raises the risk for a spill in prices. The S&P 500's rise in 2023 reached almost 16% in mid-June.
Money market funds should be used as a place to park money temporarily before investing elsewhere or making an anticipated cash outlay; they are not suitable as long-term investments.
Indeed, a good mix of equities (yes, even at age 70), bonds and cash can help you achieve long-term success, pros say. One rough rule of thumb is that the percentage of your money invested in stocks should equal 110 minus your age, which in your case would be 40%. The rest should be in bonds and cash.
As people get older, they generally become more risk-averse. This is understandable, as seniors have less time to recover from financial losses than younger people. For this reason, our advice to seniors is that they should only invest in stocks if they can afford to lose money.
Invest for the long term: One of the best ways to avoid losses in stocks is to invest for the long term. This means you shouldn't buy stocks and then sell them immediately if they decline in value. Instead, it would be best if you held onto them for the long haul.
Think about how much investment risk you're comfortable with. A higher growth option will have higher risk and experience more volatile returns over the short term. But it will usually achieve higher returns over the long term. A conservative option will offer lower risk but lower returns over the long term.
In June, Commsec chief economist Craig James told Canstar that Australia has a 33% chance of falling into recession in 2023, and that if it did, it would likely be a short-lived contraction. “The sharp rise in interest rates means that the chances of a recession have risen. Perhaps a one-in-three chance.
The balance in your superannuation account generally rises over time as you accumulate contributions from your employer. However, super fees and changing investment performance can lead to dips in your super balance.
Superannuation is generally protected upon bankruptcy from creditors as it is considered exempt divisible property. This protection also extends to lump sums paid to a bankrupt from their superannuation fund on or after the bankruptcy date.
“U.S Treasury securities are considered the safest investment option, as they are backed by the full faith and credit of the U.S government. These investments come in several forms such as savings bonds, treasury notes, treasury bills, and more,” Chavez said.
In this regard, as one of the basic rules of financial planning, the asset allocation or 10-5-3 rule states that long-term annual average returns on stocks is likely to be 10%, the return rate of bonds is 5% and cash, as well as liquid cash-like investments, is 3%.
Some options for relatively safe investments include high-quality bonds, certificates of deposit (CDs), and money market accounts. These investments are generally less risky than stocks, but also have lower potential returns.
What is the safest investment for seniors? Treasury bills, notes, bonds, and TIPS are some of the safest options. While the typical interest rate for these funds will be lower than those of other investments, they come with very little risk.
By the time you've reached your 70s, your asset allocation is often recommended to be about 70-80% invested in bonds, with the rest invested in equities while retaining a small holding in cash.
First, though, make sure you have enough cash set aside to cover three to six months of your living expenses. It's best to keep an emergency fund in a safe, protected account — like an MMA — rather than invest it in riskier vehicles. Once you meet that threshold, you can consider other, higher-growth opportunities.
For financial security, keep some cash in the bank. Double emphasis on some, because there are good reasons not to keep too much money in cash, too. Inflation decreases the value of any money you hold in cash. Inflation, aka rising prices over time, reduces your purchasing power.
Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events. Beyond that, the money is essentially sitting and losing its value.