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International savings | 23
Cash:
more complex than
it seems
There is a lot to consider given the current
complexity in the world of savings
by Torben Nielsen, Head of Balance Sheet, Barclays Wealth
C
ontinued market storms have nervousness about investment security, it is par- Cash investments need as much thought as
turned cash from the ugly duck- ticularly important for investors to consider care- those for other asset classes – they are not a total-
ling of the investment world into fully their requirements and available options. ly easy option. Describing the fully panoply of
something of a swan. The reasons Cash and alternative capital-protected products cash investments, and their uses, is beyond the
behind this transformation are now provide a range of opportunities for those scope of this article. But it is worth highlighting
easy to understand. The conven- clients with larger sums to invest. But investors briefly the issues likely to be important to
tional asset classes have fared badly over the past will still need investment advisers and private investors, and the sorts of cash products now
year – equities have fallen by around 40%, and banks to help select the products most appropri- available.
many types of corporate credit have also taken a ate for them. This is the way to beat normal bank
hefty hit. Some alternative investments used by account rates. Investor needs and preferences
high net worth investors (HNWI) have also per- Why “risk-free” may not be risk-free are key
formed badly, including hedge funds and other Cash investments are at risk from inflation. At An investor’s approach to cash must start from
absolute return investments. a fundamental level, one could argue, investment an assessment of their own needs and investment
Against this unsettled background, cash has return or portfolio market value should not real- preferences. As ever, investor needs are best
been seen as a “risk-free” way to preserve value - ly become ends in themselves. In reality, HNWI talked through between individuals and financial
and this attraction has outweighed the declining invest so that they (or their dependants) can keep advisers. But recent psychological work is also
interest rates on offer. The liquidity of many cash up a certain level of consumption over a sus- allowing a rigorous approach to the issue of
investments has also appealed. And, for those tained period of time. But cash is very definitely investor preferences, as discussed below.
HNWI already thinking about how to benefit not a “risk-free” way of obtaining this objective. Investor needs are reasonably easy to identify.
from the eventual economic recovery, cash Returns from a cash-based portfolio will depend For example, how much income will the investor
appears a good way to store up firepower for on real (after inflation) rates of interest. And, as need from his or her investments? (Raising the
other future asset purchases. recent experience has demonstrated, these can question of sensitivity to rate fluctuations). Is the
In a situation where interest rates are low, fall – potentially leaving cash-based investors in investor likely to require any money unexpected-
where individuals are holding a larger proportion the lurch. There is also the risk of default as ly? (So, does he need cash that is easily accessi-
of their portfolio in cash, and where there is discussed below. ble?) And what is the investor’s investment
Zurich Bank International
There’s strength and then there’s Zurich strength
R
Licensed by the Isle of Man Financial Supervision Commission to take deposits.
www.investmentinternational.com April 2009 Investment International
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