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Thinking about holding cash this year? Here are the views of Wall Street experts.

Jessie Ramsdale
22. 4. 2023
5 min read

There is a lot of talk about whether it is better to sit on the money at the moment and wait for this storm to pass, and then go back to the stock market. But it's not that simple, why? Let's take a look at that right now.

Recently, interest rates have been rising and with them have come rising returns on savings accounts, which are now as high as 5%. Bank of America analysts even consider cash a compelling alternative to the S&P 500.

In the first quarter of 2023, investors moved $508 billion into money market funds. Wall Street experts, however, recommend not avoiding stocks but following your plan and long-term goals. According to Bank of America, the S&P 500 index should deliver a 7% annual return over the next decade. So let's take a look at how the experts see it.

Jonathan Shenkman

Jonathan Shenkman is the founder and president of the Shenkman Wealth Manegement Fund, where he also serves as a portfolio manager, as well as an advisor to the fund's clients.

Allocating more funds to high-yield CDs, money market funds or Treasuries may seem prudent, but this is a form of market timing and should be avoided.

In fact, according to Shenkman, investors will not gain as much advantage as they imagine by doing so, why? This is about market timing. By sitting in some instruments and waiting for this wild market to end, you may be depriving yourself of some of your profits.

According to Shenkman, investors who continue to stick to their plan and don't move from one instrument to another and back again will be better off. It's the same as the cost averaging method for ETFs, for example. A person who times the market will make less than a person who invests regularly and sticks to his plan.

Marc N. Balcer

Marc N. Balcer is a financial advisor and principal of Girard, the wealth management division of Univest.

In the long run, cash is not risk-free.

According to Balcer, there is one big risk with cash, and that is that over the longer term it is outpaced by inflation, or alternatively, inflation wipes out the vast majority of gains if cash is stored somewhere.

In the shorter term, if investors want to hold cash, they need to look for products that are suitable for holding cash, that is, that can at least scale with inflation. But there can be a problem with such products. Investors' deposits may not be properly insured and collateralised, so there is a risk, especially nowadays, that investors may lose their money.

Balcer believes that the risk of cash outperforming inflation is the same as the risk of reinvesting money in the stock market at the wrong time.

Brent Weiss

Brent Weiss is a financial advisor at Facet Wealth, where he helps clients manage their finances and assets.

Don't just chase rates, follow your plan, in the long run stocks will outperform bonds and bonds will outperform cash.

Weiss is of a similar mind to Jonathan Shenkman. In fact, Weiss also believes it is important to stay consistent in this regard and not succumb to short-term trends. The market goes through different cycles, one is when equities are in vogue, offering high yields, then there is a time when cash or bonds are in vogue.

But Weiss says the important thing is the long-term trend, where stocks clearly beat both bonds and cash.

What's my take on this?

My view, as an equity investor, may be somewhat unambiguous. The current situation where bonds appear to be the better option is due to inflation and the rise in interest rates that comes with it.

Therefore, I see this time as transitional, and in the long run I still believe in equities. At the same time, I agree with the opinion above, an investor should stick to their plan. Because it really doesn't do any good to change our investment plans suddenly. In fact, it may happen that we act under the influence of emotions.

Rather than stashing cash somewhere where I can just beat inflation, I find it a better option to buy out gradual declines that can increase my potential profit in the future.

Conclusion

As we can see, even according to the experts, it is not entirely wise to just move money from stocks into cash, and possibly other cash instruments. What's important for investors to take away is that it's really not a good idea to jump from one asset to another without any longer-term plan, just because something currently offers a higher yield.

The principle of long-term investing is sticking to your long-term investment plan. This is what maximizes the likelihood that we will make a profit in the future.

WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.


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