4.6% inflation makes cash a losing strategy
Media release
Sydney, 29 April 2026: New analysis from InvestSMART has found a $50,000 balance held in cash over the past 20 years failed to preserve purchasing power after inflation, while the same amount invested in a diversified high-growth portfolio ended up more than $73,000 ahead in real terms, underscoring the long-term cost of relying too heavily on "safe" assets.
Despite growing to $91,639 in nominal terms, the cash balance was worth the equivalent of just $49,710 in 2006 dollars after inflation, according to the analysis.
The findings come as ABS data showed inflation rose 1.1% in the March 2026 quarter and 4.6% annually, reinforcing the challenge for savers trying to stay ahead of rising prices.
InvestSMART CEO Ron Hodge said the inflation spike reinforces an uncomfortable reality for savers.
"Higher inflation raises the cost of doing nothing," Hodge said.
"What surprised us in the analysis was not that growth assets came out ahead, but that cash actually lost purchasing power over 20 years despite almost doubling in dollar terms.
"When inflation is running at 4.6%, the hurdle for preserving wealth has moved higher. That's not a reason to stop investing. It strengthens the case for staying invested."
What $50,000 became after inflation (2006-2025)
|
Investment |
2025 Balance |
Value in 2006 Dollars |
Real Gain/Loss |
Real Return p.a. |
|
Cash |
$91,639 |
$49,710 |
-$290 |
-0.03% |
|
Term Deposits |
$111,161 |
$60,661 |
$10,661 |
0.97% |
|
Balanced |
$167,435 |
$90,175 |
$40,175 |
2.99% |
|
Growth |
$195,286 |
$104,593 |
$54,593 |
3.76% |
|
High Growth |
$231,516 |
$123,235 |
$73,235 |
4.61% |
Source: InvestSMART analysis
The analysis found that while cash and term deposits appeared to deliver solid gains in dollar terms, much of that return was eroded once inflation was taken into account.
Even with one-year term deposits now averaging 5.04%, and top rates reaching 5.55%, according to Canstar, Hodge said headline rates can overstate the protection deposits offer once inflation and tax are considered.
"A 5% term deposit looks attractive, but if inflation is 4.6% and tax takes a slice, the real return can look very different," he said.
"That's why investors need to focus less on headline rates and more on whether their money is actually keeping pace with rising living costs."
Hodge said periods of higher inflation often tempt investors to become more defensive at exactly the wrong time.
"One of the biggest mistakes investors make is treating uncertainty as a reason to stop," he said.
"History suggests the better response is usually to stay diversified, keep investing and remain focused on long-term compounding."
"Inflation doesn't just raise prices. It can erode wealth if too much money is left in assets that struggle to outpace it," Hodge said.
"That is why rising inflation is not an argument for abandoning long-term investing. If anything, it reinforces why it matters."
Contact
Lauren Franze
📧 l.franze@investsmart.com.au
📞 0451 803 082
Table assumptions: What $50,000 became after inflation (2006-2025)
-
Analysis assumes a $50,000 lump sum invested on 1 January 2006 and held to 31 December 2025 (20 years), with returns reinvested.
-
Cash based on average Australian cash account returns over the period.
-
Term deposits based on average rolling Australian term deposit rates over the period.
-
Balanced, Growth and High Growth based on long-term average returns for diversified portfolios aligned to those risk profiles.
-
Inflation adjustment based on average annual inflation of 3.01%, with all "real" values shown in 2006 dollars.
-
Returns shown are before personal tax and fees, and intended as illustrative long-term comparisons, not forecasts.
Frequently Asked Questions about this Article…
InvestSMART found a $50,000 lump sum held in cash from 1 Jan 2006 to 31 Dec 2025 grew to $91,639 in nominal terms but was worth just $49,710 in 2006 dollars after adjusting for inflation — a real loss of $290 (about −0.03% p.a.), meaning cash failed to preserve purchasing power over the 20‑year period.
The analysis shows a diversified high‑growth portfolio turned $50,000 into $231,516 nominally by end‑2025, with an inflation‑adjusted value of $123,235 in 2006 dollars — a real gain of $73,235 and a real return of about 4.61% p.a., substantially outperforming cash.
Term deposits grew to $111,161 nominally and to $60,661 in 2006 dollars, producing a real gain of $10,661 or about 0.97% p.a. The report notes one‑year term deposit rates are averaging 5.04% (top rates ~5.55% per Canstar), but when inflation (and tax) are taken into account the real return can be much lower.
Real return is the investment return after adjusting for inflation. The InvestSMART analysis used an average annual inflation rate of 3.01% to convert nominal balances into 2006 dollars, showing that nominal gains can be eroded by inflation — e.g., nearly doubling in dollars (cash) but losing purchasing power in real terms.
Higher inflation raises the hurdle for preserving wealth: with annual inflation at 4.6% (ABS March 2026), headline interest rates need to be considerably higher just to maintain purchasing power. InvestSMART’s CEO warns that inflation increases the ‘cost of doing nothing’ and strengthens the case for staying invested and diversified.
Assumptions: a $50,000 lump sum invested 1 Jan 2006 to 31 Dec 2025 with returns reinvested; cash based on average Australian cash account returns; term deposits based on average rolling Australian term deposit rates; balanced, growth and high‑growth based on long‑term average returns for those risk profiles; inflation adjustment used average annual inflation of 3.01%; and returns are shown before personal tax and fees as illustrative comparisons, not forecasts.
According to InvestSMART’s commentary, periods of higher inflation often tempt investors to become overly defensive at the wrong time. The CEO suggests history favors staying diversified, continuing to invest and focusing on long‑term compounding rather than using inflation as a reason to stop investing.
Key takeaways from the analysis: look beyond headline interest rates to the real return after inflation and tax; consider diversification across asset types (balanced, growth, high‑growth) that historically outpaced inflation; and focus on long‑term investing rather than short‑term reactions to inflation spikes.
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