In long-term investing, cash is not king

● A lesson investors need to learn from the long history of returns from asset classes in South Africa is that “cash is trash”.

A bank deposit exposes you to minimal risk, but that comes at a cost. Old Mutual’s Long-Term Perspectives 2018 report states that over 93 years, cash has an after-inflation return of just 0.9% a year. “It’s better to own shares in the bank than to leave your money there.”

If you wanted to double your money, after inflation, it would take you 90 years if you left your money in cash, 41 years if you invested in South African bonds, and 10 years if you invested in local equities.

You need equities when investing for the long term. Over 88 years, South African equities have delivered an after-inflation return of 7.8% a year. South African bonds have delivered 1.6%, and cash 0.7% a year (assuming an inflation rate of 6.2% a year).

Many investors don’t realise the destructive impact of inflation. Inflation of 6% will reduce the

R10 000 you have today to R5 584 in 10 years and R3 118 in 20 years.

Look at long-term investment returns in “real” terms, which means stripping out the impact of inflation.