Long title to today’s thoughts, but how many times did you hear that growing up? The problem is doing this you send your money backwards not forwards into growth.     

This is very easy to demonstrate, as at 11/07/2017 the CBA offer a 12month rate term deposit of 2.35%.  Let’s crunch some numbers on $100,000 for easy maths taking into account Tax at the Superannuation fund tax rate of 15%. Also include the CPI from the ABS site.

$100,000 x 2.35% = $2350
Less Tax
2350 x 15% = $352.5
Less Spending Power reduction of CPI at 2.1%
$100,000 x 2.1% = $2,100

Income $2350
Less Tax $352.50
Less CPI $2,100
= $99,897

So 12 months after putting your $100,000 in the bank you can take it out and buy the equivalent of $99,897 worth of stuff.  You are definitely going backwards.

Now you may have seen the chart from Motivated Money in the last Blog, check out the impact of the CPI taken direct from the ABS on the same $100,000 invested at the end of 1979.

That $100,000 now buys the equivalent of $21,286 worth of Goods and Services from back in 1980.  Obviously most of the damage is caused when inflation was high in the 80’s.  Even the impact from the 90s when inflation leveled out some what the spending power of our funds has still Halved.  Please note this hasn’t taken into account the Tax you would have had to pay along the way. It would be a lot worse if we included that.

So this is a little, sorry, very concerning when you are planning to make your retirement savings last the rest of your life, putting all your money in the Bank because it is safe and secure and Guaranteed to grow is not a great plan. I’d say its more like, don’t put your money in the Bank, its risky and Guaranteed to shrink.  

Now holding a cash reserve is an awesome idea and must be done.  But too much cash is dangerous. Any allocation to cash need to be well thought out and part of your overall financial strategy.

There are many options here other than cash in the Bank. Please reach out to us if you are concerned about the impact that having your money in the bank is having on your future.