Understanding AvSuper’s Cash Investments

Many of our members want to know how much of their retirement savings should be allocated to low-risk cash investments.  While there is no one-size-fits-all response to this question, we hope that this updated investor education fact sheet will help members better understand how AvSuper manages cash investments and how members can use the Cash Investment Option effectively in their own superannuation portfolio.​

Understanding cash investments

Cash interest rates have been at all-time lows and together with volatile investment markets, cash assets still remain the foundation upon which the Trustee builds its investment portfolio. Cash is a defensive asset class known for its low-risk yet low-return characteristics, aimed at minimising risk and mitigating volatility. Importantly, cash also provides liquidity during times of market uncertainty.

On their own, it is unlikely that cash investments will help you reach your retirement savings target or maintain your savings during retirement. The main factor affecting the returns for members in this asset class is the current level of short-term interest rates in Australia (remember that rates are set by the Reserve Bank of Australia). These have been historically low, however these have steadily increased in the last year together with rising inflation.

The main reason that cash earns such modest returns (relative to other investments) is because it carries lower risk and appears safe. The main way people can lose with investing in just cash, is through inflation; for instance, if you are earning 0.5% annually in cash while the annual inflation rate is 3%, you are actually losing money as your purchasing power has been eroded.

The short term risk label of very low for the Cash option is appropriate for the overall investment. However, the potential for negative returns can be expected during times of very low interest rates. Rising inflationary environment has produced a rising interest rate environment, so please check the latest interest rates before proceeding with any changes to your portfolio.

How does AvSuper utilise cash investments overall?

Cash plays an important role in AvSuper’s investment portfolio. We use cash investments to manage cash flows into and out of other asset classes, and to pay for the Fund’s operating fees and expenses. We also need to ensure that we have enough liquid cash available to pay regular pension payments from our income stream division and to pay other withdrawals and benefits from the Fund.

Typically, AvSuper’s cash investments aim to provide income, liquidity and relatively low but stable returns by investing in a range of short-term money market investments (that usually mature in 24 months or less).

By comparison there are some cash options in other superannuation funds called ‘cash enhanced’ or ‘cash plus’ options which sometimes include higher risk debt instruments such as fixed income securities, promissory notes, bank issued certificates of deposit and other medium-term interest bearing securities including derivative contracts.

The Trustee has determined ‘cash enhanced’ or ‘cash plus’ products are not suitable for our cash portfolio, despite the possibility of higher returns. For example, during the GFC, many other superannuation funds found that the riskier assets commonly found in cash enhanced type products were less liquid than originally believed, resulting in many reporting “negative cash returns” and members actually losing money in these options. By not investing in these products, AvSuper was able to protect our members invested in AvSuper’s Cash Investment option from negative cash returns during the 2008-09 GFC.

About AvSuper’s Cash Investment Option

If you have investments in AvSuper’s Cash Investment Option, you can be assured that your money is invested in low-risk, liquid cash instruments and can be easily accessed if you need to switch it or withdraw from the option.

The majority of our Cash Investment option is invested in the BlackRock Cash Fund with the remainder in longer duration (up to 24 months) term deposits with Australian financial institutions. AvSuper’s portfolio of term deposits has enabled the Cash Option to remain in the top quartile position against other major super funds for most time periods over the last ten years.

BlackRock Cash Fund uses a low-risk approach to invest in a diversified pool of only the most liquid short-term Australian money-market securities. The strategy is restricted to bank and corporate securities with a short-term credit rating of at least A1, with most of the investments being rated A1+, the highest-possible short-term rating.

A portfolio of bank term deposits also plays an effective role in the Cash Investment option and AvSuper is currently investing at attractive interest rates on offer from a number of financial institutions across a range of different terms. The rates for institutions (such as superannuation funds and other large investors) are not always the same as those available for private investors with smaller sums to invest. The Trustee believes term deposits are likely to remain attractive as a cash investment.

The right Cash choice for you…

Cash investments are low risk but also low return, so these investments are not designed to meet the growth needs of members still saving for their retirement. Cash investments have an important role to play in most members’ portfolios and overall investment strategy – and not just for those who are risk-averse.  They provide investment flexibility and protection in times of high volatility.

For members in our income stream division, an appropriate minimum allocation to cash investments also provides an important cash flow management benefit – regular income stream payments can be made from your cash option without having to worry about selling units from other options at an inopportune time (eg when unit prices are low).

Minimum cash levels that are considered prudent can vary for members, depending on your risk appetite and your stage of retirement planning.

Thinking of transferring some or all of your super into—or out of—cash?

Make sure you have considered all the issues and risks. Consider your risk appetite and investment horizon. Call us for personalised financial advice on your AvSuper investment option if you think you need to. Also remember that:

  • Cash is usually suited to investors who have an investment timeframe of less than a year, want to protect the value of their investment and who are willing to accept very little real growth. You may preserve capital by allocating some of your super to cash but there is a risk you may not keep pace with the impact of inflation
  • If you are transferring from other AvSuper investment options with exposure to share markets while markets are down, you may crystalise losses on your investment. Worse, if there is a strong rebound in share markets after you transfer, you are likely to miss out on that recovery.

If you have an AvSuper accumulation account or income stream account, you can choose how your super is invested, allowing you to influence your investment risk to suit your needs and situation. There are nine investment options to choose from (including Cash as one of three specific asset class options), and you can choose more than one investment option for your money. You can invest your current balance differently to any future contributions/pension drawdowns.

The best option for you depends on your investment objectives, investment timeframe, age, attitude to investment risk and personal circumstances. Please note that past performance is not always indicative of future performance.

We recommend you read our Investment Guide or Product Disclosure Statement (PDS) and consider your options carefully.

Email: avsinfo@avsuper.com.au  |  Local call: 1300 128 751  |  Phone: 02 6109 6888  |  www.avsuper.com.au

This information is of a general nature only and does not take into account your personal objectives, situation or needs. Before making a decision about AvSuper, you should consider your own requirements and the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD). For a copy call us or visit the AvSuper website, www.avsuper.com.au. AvSuper Pty Ltd (ABN 46 050 431 797, AFSL 239078) is the Trustee of the AvSuper Fund (ABN 84 421 446 069). FS3000.5 02.2021