Economic impacts on Cash option returns

14 July 2020

Due to COVID-19 (Coronavirus), Australia, and the rest of the world, has been facing a range of challenges across public health, the economy and other impacts from market volatility. During this time, some members have chosen to switch to the Cash investment option, with the intent of stabilising their investment returns over the short-term. 

When the COVID-19 virus hit, it had an almost immediate impact on global markets. Many members of AustralianSuper and other super funds saw a negative change in their super balance. This understandably caused some worry.

But, while the Cash option is designed to provide stable returns over the short-term, it’s important to consider your long-term objectives and personal circumstances as we navigate our way through COVID-19 pandemic, and also the impacts that our current economic conditions may have on Cash option returns.

To do this, we need to first look at what determines the returns of the Cash option.


Driving factors of Cash option returns

The level of market interest rates is the primary driver of returns for the Cash investment option. Higher interest rates would lead to higher returns, and the same goes for lower interest rates resulting in lower returns. These market interest rates are derived from the official cash rate set by the Reserve Bank of Australia (RBA).

Given the state of the Australian economy (as of 1 July 2020), it’s expected that the RBA will maintain low interest rates to help support economic growth, until a strong recovery is in place. The market expects that returns for cash investments will be low for the foreseeable future. There's also a very high risk that returns could be lower than inflation over the long-term.

To put it simply – there is a very high risk that an investment in the Cash option now could result in your super savings not being able to keep up with rising costs over time.


Impacts to Cash option returns

While the Cash option is designed to provide stable returns over the short-term, there are a number of factors that can impact the returns of the Cash option:

  • Low or negative interest rates: While the current outlook for sustained negative interest rates in Australia is low, market events could lead to a scenario in which interest rates go below zero. This has occurred in some overseas markets. 

    The Cash option can have zero or negative returns after fees, costs and taxes.  When market interest rates are low, the return of the Cash option may be zero.  Low or negative market interest rates may result in negative returns for the Cash option.
  • Sudden increase in interest rates: The Cash option has a small level of interest rate risk which can impact returns. This is due to the inverse relationship of price and interest rates. What this means is that a market event that increases interest rates could reduce the value of current holdings, leading to a negative return for a short period of time.



Managing your investment risk

When it comes to your retirement savings, it’s important to understand the investment options available to you and ensure that your investment choices are aligned with your own personal circumstances, financial goals and appetite for risk.



No matter what stage of life you’re at, consider speaking to an AustralianSuper adviser for more specific advice on your investment options, super and retirement planning.



Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.

This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs.  Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 

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