Cash still plays a vital role for many investors.
Source: Supplied
CASH is still king when it comes to investing, despite concerns by some experts that people are missing out on higher income and potential capital gains.
One of the major drawcards of cash is the government guarantee, which puts it streets ahead of higher-paying investments for many security-minded savers, fund manager Pengana Capital director Damian Crowley says.
The government guarantees bank deposits up to $250,000.
"In a sense this is still distorting the market, every other investment has not got a government guarantee," Crowley says.
"This has been a huge bonus for investors post GFC and the GFC is still in people's minds and will be for the next 10 to 15 years to come."
However, cash is now starting to be invested back into the share market.
"Until recently you could get term deposits yielding 6 or 7 per cent, now they are more like 4 to 5 per cent. As people roll over their older term deposits into the newer ones, we expect to see a lot of money move into the share market.
"There is still a little bit of apathy from investors and that is why some will leave their money in cash.
"Cash also works better in superannuation than outside super as there is not a lot of tax to be paid on the interest."
The latest analysis by research company Canstar shows the level of cash held by long-term investors might be high in dollar amounts but it is still within historical proportions compared with other assets.
"From fund managers to the governor of the Reserve Bank, experts appear to be urging investors away from cash and into more growth-orientated investments," Canstar research manager Chris Groth says.
Despite improvements in equity markets, long-term investors, in particular self-managed superannuation funds, are still sticking to cash, he says.
Before the global financial crisis, "cash" (which includes debt securities and term deposits) represented about 23 per cent of small super fund assets compared with 31 per cent in direct shares, Groth says. At December 2012, the asset proportions were 28 per cent cash and 31 per cent direct shares.
"It's an increase (in cash) of only 5 percentage points - hardly a wall of cash - and I think it really points to cash being a long-term investment strategy rather than a reactive instinct of frightened investors," Groth says.