Cash is just too risky!

TL;DR

Cash rates and term deposit rates have drastically decreased over the years, posing a significant risk for long-term investors.

Transcript

g'day and welcome to this week's video my name's robert goudie and this week we're gonna have a bit of a chat around the the cash rates and turn deposit rates and consider how dangerous these products are over the longer term now this is a topic that we've covered off a few times in the past I think it's worth bringing up again particularly given t... Read More

Key Insights

• 🍉 Interest rates are currently low and expected to remain so, making cash and term deposits less attractive for long-term investors.
• 😘 The reduction in term deposit rates over the years has resulted in significantly lower returns for investors.
• 🥹 Holding large amounts of cash or term deposits for a long time poses a substantial risk to one's wealth and financial security.
• 👨‍💼 Investing in assets that generate income, such as businesses, is a more effective strategy for long-term wealth accumulation.
• 👨‍💼 Short-term market volatility is inevitable, but in the long run, businesses tend to outperform cash investments.
• 😚 Cash reserves are important for emergencies but keeping excess funds in cash exposes them to the risk of losing value over time.
• ✋ Investors should consider the duration of their investments and choose assets that offer the potential for growth and higher returns.

Questions & Answers

Q: Why are interest rates so low, and why are they expected to stay low for a long time?

Interest rates are low due to the weak economy and the inability of households to handle higher rates on their home loans. The expectation is that rates will remain low because of these factors.

Q: How have term deposit rates changed over the years?

Term deposit rates have significantly decreased over time. In the mid-80s, a half-million dollar deposit could yield around $30,000, but now it would only provide around $20,000 or even less.

Q: Why is investing in cash and term deposits considered risky in the long term?

Cash and term deposits don't provide any product or service that generates income. While they offer security, they don't keep up with inflation, leading to a decrease in real value over time.

Q: What alternative investments are recommended for long-term investors?

Investing in assets like businesses that offer products or services with pricing power, such as Apple, Google, or Facebook, is recommended. These investments have historically outperformed cash over the long term.

Summary & Key Takeaways

• Interest rates are currently low and expected to remain low for the foreseeable future, making investing in cash and term deposits risky in the long run.

• The Reserve Bank has been reducing the official rate, leading to lower rates for term deposits.

• An investment of 1 million dollars in the mid-80s would have yielded a comfortable 6% return, but now it would only provide around 2%.