Saving your money in the bank (cash) can be the riskiest investment of all

Investing your money in cash can be the biggest threat to your wealth

Every investor has heard that equities and listed property are “risk assets” which can carry a lot of volatility and that your bank account is the safest asset / vehicle to save in. That’s certainly appropriate if you are putting money aside that you might need in the next year or two, but it’s far less so when you’re investing over the long term. When your investment horizon extends over 10-20 years or longer, there’s a far more serious risk to your wealth than the day-to-day ups and downs of asset prices. Before grabbing your pitchforks, have a look at what inflation does to R10 000 over a 30-year period.
Inflation erodes spending power

Source: Old Mutual Investment Group, MacroSolutions

What this shows is that even at an inflation rate of just 3%, the value of R10 000 would diminish to the equivalent of R4 000 in 30 years. At the upper end of the South African Reserve Bank’s target range, that R10 000 reduces in value to the equivalent of just R1 700 in today’s money over the same period.

To combat inflation, investors need exposure to higher growth assets such as equities and listed property. As the graph below shows, over the same 88-year period, local equities have produced real returns of 7.8% per year.
Inflation erodes spending power

Source: Old Mutual Investment Group, MacroSolutions

For more information on these type of investments, please contact me so we can discuss various options which best suite your profile.