It is believed that there is currently around $1.4 trillion in Australia in Cash and Bank Deposits in Australia as some investors have sought a safe haven. This is more than the total value of assets currently held in the entire Australian Superannuation System.
For those seeking income from their investments however, the below chart shows the after tax income from investing $100,000 in 1995 into a basket of Australian Shares (blue bars) compared to investing into a cash deposit that returns the RBA cash rate which is currently 4.25% (red bar).
The green bar is the level of income received when the value of franking credits from Australian shares is included. Franking credits from the tax already paid by a company before paying a dividend, which is effectively returned to the taxpayer through the tax system. Effectively this means that with the company tax rate at 30%, a 5% fully franked dividend equates to around 7.1% in pre-tax income when those franking credits are included. We have produced a video on our YouTube channel for those who wish to explore this aspect in more detail.
This chart clearly shows that for long term investors seeking income, that the after tax income from Australian Shares measured since 1995 is now providing around 3 times as much income compared to an investor who invested the same amount into a cash deposit.
Given that there are very juicy dividends on offer in the current investment environment such as Telstra paying 8.6% fully franked dividend (which is equal to more than 12% on a pre-tax basis), this is food for thought.
Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at March 2012.