I want to share a startling bit of data… As you know, I mostly eat, sleep, live and breathe investing. Because I’m so constantly immersed in this world, it’s rare I come across a bit of data that truly startles me. But I have to say these numbers caught me completely unaware. There’s about $1.8 TRILLION in cash on deposit at Australian banks. That’s an even greater amount than the entire market capitalisation of the S&P All Ordinaries Index, at $1.56 trillion, according to The Australian Financial Review. In other words, there’s enough cash in Australian banks right now to…
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I want to share a startling bit of data…
As you know, I mostly eat, sleep, live and breathe investing. Because I’m so constantly immersed in this world, it’s rare I come across a bit of data that truly startles me.
But I have to say these numbers caught me completely unaware.
There’s about $1.8 TRILLION in cash on deposit at Australian banks. That’s an even greater amount than the entire market capitalisation of the S&P All Ordinaries Index, at $1.56 trillion, according to The Australian Financial Review.
In other words, there’s enough cash in Australian banks right now to buy every last share in the All Ords index, and then some!
Now, your mind is probably cranking into gear, pondering just what this huge pile of cash signifies. You can rest assured that my brain has been busy with the same question: Exactly where is all that money going to go?
Much of that cash is going to flow into the share market, I’ll argue. And the implications for your financial future are clear….
So, below, feast your eyes on my two ‘wild’ predictions for the ASX! Actually, they’re not so wild. More like totally obvious!
But first, about that lit fuse…
That thing I said that had Take Stock readers like you responding in droves…
It’s nice to know you’re paying attention!
After I wrote on Monday about how experts say $1 million in super won’t be enough to comfortably retire on in the year 2048, I heard from a number of Take Stock readers like you.
Some pointed out that they have themselves already comfortably retired on much smaller amounts. In which case I say, more power to you!
Many others objected to the sheer size of the amount that consulting firm Deloitte said would be necessary for a comfortable retirement in 2048 — $1.58 million for men and $1.76 million for women.
I’m all for questioning projections provided by experts. It’s good to be sceptical! But in this case, I can’t say I believe these sums are wild or bizarrely high…
Even more than that, I think it’s hard to argue, given all the evidence, that most Australian workers are adequately planning for retirement.
Call me a killjoy if you must, but there it is.
What’s more, sitting in cash isn’t going to help. Let’s return to that $1.8 trillion sitting in our banks…
Two key predictions for the ASX
It is true that not all of the $1.8 trillion in cash will belong to individuals like you and me.
Some of it will no doubt belong to businesses. Some to foreign investors who prefer to hold Australian currency.
It’s also worth noting that the SMSF army alone is sitting on about $150 billion in cash!
In any case, it’s reasonable to look at this tremendous pile of cash and reach two conclusions.
Consider how the cash rate is at a historic low — ditto term deposit rates. That means that this pile of cash is soon going to be on the move.
Some of it will flow into property, and some of it no doubt will flow overseas. Much of it is also going to flow into our share market.
That’s the basis of my first prediction: A lot of cash is going to be heading into the share market, and soon.
My second conclusion follows directly from the first. All this money heading into the market is probably going to drive up share prices.
Meaning that Australian stocks are likely cheaper now than they will be.
ASX 10,000? We’ll see it one of these days. Of course, by that time, it’ll probably be a pretty crowded trade…
Two birds with one stone?
As an individual investor, you’re in a great position to kill two birds with one stone.
You can plan for your retirement – shore up your savings and your financial future — AND you can get in on cheaper share prices by buying the best Australian companies today.
The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!