Skip to main content
Back

Cash is King?

2 June, 2017

Amidst the current volatile market conditions, it's easy to feel safe hiding your savings in bank deposits. After all, with minimal risk of losing your capital, everything seems fine.

In other words, 'cash is king.' Or is it?

Unfortunately, even in the current low inflation environment, this adage does not hold true.

LOW DEPOSIT RATES + INFLATION: A DOUBLEWHAMMY

 

Low Cash Return

Banks are offering very low deposit rates due to the abundance of money supply. In fact, the yield on cash deposits is quite low. For example, rates on saving deposits in Asia generally do not exceed 1%1 . This does not bode well for the growth of your savings.

Inflationary environment

The global economy is still recovering. Inflation has gradually increased over the past year as oil and commodity prices rebounded.

As a result, the price of goods related to oil, such as petrol, are also increasing. An increased petrol price means that you have less in your budget to purchase other items.



WHAT ARE REAL INTEREST RATES? 

 

For depositors, the real interest rate can be interpreted as the bank deposit rate minus the rate of annual inflation.

Real purchasing power matters

In a number of countries and regions across Asia, real interest rates today are extremely low - even negative in some cases. When real interest rates are negative, the real purchasing power of your money is decreasing over time, and holding cash over sufficiently long periods can compromise your saving objectives.

Inflation erodes the purchasing power of your money over time. But you can take steps to protect your wealth. By shifting a portion of cash in bank deposits to other investments that earn more, you may potentially earn more without taking on excessive levels of risk.

  • Diversification

    There is no free lunch. But Diversification comes close in investing. A diversified portfolio was shown to have the ability to optimize returns with lower volatility in the long run. Divergence in the performance of portfolios can be attributed to asset allocation.

    Read more
  • Plan for retirement with inflation in mind

    To live comfortably in sliver age, your goal should not be merely to accumulate assets worth a nominal value. Inflation should also be considered to ensure an investment appreciates over the years, so its real purchasing power can satisfy your retirement needs.

    Read more
  • 5 benefits of ESG investing

    The demand for ESG investing is surging, as investors in different life stages align their personal values to their financial goals. We list the five benefits of ESG investing.

    Read more
See all

In other words: Inflation has eroded the purchasing power of your money.

 

Real Interest Rate (Deposit) in Asia1

 

Data as of 31 July 2018. Real interest rate (deposit) in Asia are constructed by subtracting headline CPI inflation from a 3-month time deposit rate.

EQUITIES AND BONDS HAVE POTENTIAL FOR HIGHER RETURNS 

 

Investment returns for equities and bonds have varied over the past decade (2007-2016). As an illustrative example, Asian equities and Asian bonds delivered 48% and 65% cumulative returns, respectively. This translated into compound annual returns of 4.0% and 5.1%, respectively2 .

History suggests that equities and bonds, despite higher risk and variability of returns than cash, have better potential for higher returns over the long term3 .

In a survey conducted in eight Asian economies, Manulife Asset Management found that cash and deposits account for as much as 43% in portfolios of investors within the region4

Investors hold 43% cash in the region 

It is suggested to review your current investment holdings and future financial goals with a financial advisor. You may be currently holding excess cash. Other investment options may potentially provide a higher real return within an acceptable risk level.


1 Source: Bloomberg, websites of Asian central banks and major banks; Data as of 31 July 2018.

2 Source: Bloomberg, as of 31 December, 2016. Asian equities’ return is represented by the MSCI AC Asia (ex-Japan) Gross Total Return USD Index. Asian bonds’ return is represented by 50% JP Morgan Asia Credit Index +50% HSBC Asian Local Bond Index (2007-2012) / Markit iBoxx Asian Local Bond Index (2013-2016). All returns in US dollars. Compound annual returns represent the compound annual growth rates (CAGR) of the respective indices during 2007-2016.

3 Cash refers to 0-3 month Treasury Bills, as represented by BofA Merrill Lynch 0-3 Month US Treasury Bill Index. The cumulative return of the index from 2007 to 2016 is 7.4%.

4 Source: Manulife Investor Sentiment Index, 4Q 2016.

  • Review and rebalance: navigating waves of volatility

    Market volatility is unavoidable. So, how should investors stay calm and ride through market ups and downs? It’s important to review and rebalance portfolios, so your investment can remain on track. 

    Read more
  • Global Macro Outlook Q3 2022: Navigating the gathering storm

    Find out how shifts in the macro backdrop could affect the global economy in the third quarter and where resilience can be found.

    Read more
  • Diversification

    There is no free lunch. But Diversification comes close in investing. A diversified portfolio was shown to have the ability to optimize returns with lower volatility in the long run. Divergence in the performance of portfolios can be attributed to asset allocation.

    Read more
See all

 


Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. The information and/or analysis contained in this material have been compiled or derived from sources believed to be reliable at the time of writing but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.

This material was prepared solely for educational and informational purposes and does not constitute a recommendation, professional advice, an offer, solicitation or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security. Nothing in this material constitutes financial, investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. Past performance is not an indication of future results. Investment involves risk. In considering any investment, if you are in doubt on the action to be taken, you should consult professional advisers.

Proprietary Information – Please note that this material must not be wholly or partially reproduced, distributed, circulated, disseminated, published or disclosed, in any form and for any purpose, to any third party without prior approval from Manulife Investment Management.

These materials have not been reviewed by, are not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions.

Malaysia: Manulife Investment Management (M) Berhad 200801033087 (834424-U). Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration Number: 200709952G). Philippines: Manulife Asset Management and Trust Corporation. Australia, South Korea and Hong Kong: Manulife Investment Management (Hong Kong) Limited in Hong Kong and has not been reviewed by the HK Securities and Futures Commission (SFC).

Important notice

WhatsApp scam alert & how to verify the status of a unit trust advisor. Click here for more information.

View more
Notice

We have migrated our website domain name to www.manulifeim.com.my.

View more
Important notice

WhatsApp scam alert & how to verify the status of a unit trust advisor. Click here for more information.

View more
Notice

We have migrated our website domain name to www.manulifeim.com.my.

View more
Confirm