RBA cash rate reaches a record low
On 1 October 2019, the Reserve Bank of Australia (RBA) announced a 0.25% cut to the cash rate for the third time in five months to an all-time low of 0.75%. The RBA Governor, Philip Lowe, said in a statement that the cut in the cash rate was made to support employment and income growth in the Australian economy. He also stated the RBA would be prepared to cut the cash rate further if needed.
With the cash rate at a record low and the possibility of further cuts, it is important to understand the impact low interest rates can have on your retirement savings. The target portfolios for most of Cbus' diversified investment options have an exposure to conservative assets such as cash or fixed interest and these assets generally earn some of their returns from an interest payment which is affected by the RBA cash rate. This means a reduction in the cash rate could be expected to have a greater direct impact on the returns of Cbus' more conservative investment options with a higher allocation to cash, such as the Cbus Cash Savings option which is 100% cash and the Cbus Conservative option which has a strategic asset allocation to cash of 20% and fixed interest of 40%.
Cbus’ diversified investment options aim to reduce the impact that any one asset class such as fixed interest or cash can have on total returns by investing across many different asset classes. For example, the Growth (Cbus MySuper) option has over 20% invested in unlisted property and infrastructure assets which provide a source of income along with capital growth. The income from unlisted property and infrastructure is derived from longer-term contracts, so returns from these asset classes are likely to be less negatively affected by cuts in the RBA cash rate. This is why diversification across asset classes is important to help minimise the impact that one type of investment can have on your retirement savings.
It is important to consider what is right for you. If you have any concerns and are considering switching investment options, help is available through the Cbus Advice Services on 1300 361 784 at no additional cost.
This information is about Cbus. It doesn’t take into account your specific needs, so you should look at your own financial position, objectives and requirements before making any financial decisions.