Should I move my investments into cash?
Joseph Middleton
Adviser
Both Equities and Bonds have gone down in value over the past 18 months, and we are in very tough economic and market conditions. At the same time cash has returned as an asset that can make money, due to sharp interest rate rises. It is therefore quite understandable that we should be asking if moving to cash, the safest asset, is the best option?
For the vast majority of clients, the answer is no. Long term investments should not be sold to cash after a steep drop in value. This is because a long-term outlook gives investments time to recover, and historically over most time periods, equity and bond investments are you best chance to beat inflation over the long term – outperforming cash. Additionally, non-cash assets can perform very well if interest rates are being cut, a time when you do not want to be holding cash.
For short term holdings cash is nearly always the recommended asset, and it is good news that you can now make a good return on your short-term holdings compared to the previous 15 years. We recommend to all of our working clients that they hold at least 6 months living costs in cash. If you are in the retirement phase of your financial planning, larger cash holdings may be advisable.
It is undeniable that cash is having its time in the sun, as all assets do, but for long term holdings you need to have a diverse portfolio of assets with varying risk. Trying to time the market by selling investments is extremely difficult - although the market is down at the moment, we do not know whether it will rise or fall in the short term. Indeed, the year to date has been quite positive for a lot of funds. The question then becomes, when would you buy back in? If you wait until investments are rising again you risk missing out on returns and chasing the previous year’s gains, which is not advisable.
As always, the best option is to have a clear long-term plan, which allows you to ride out the market drops and benefit from the market rallies to make good returns over the long term. All of our portfolios are designed on a bespoke basis for a client’s specific needs and circumstances, which we review on a regular basis.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest.