A key question is whether an investment in cash is going to help you achieve your long-term objective. Equities have been under pressure for a while, which has skewed the traditional risk-return dynamic in asset classes.
Typically, cash is on the conservative end, with lower risk, but also lower return prospects, while assets such as bonds, credit, property and equities have higher risk and return prospects.
The underperformance of equities has also filtered through to more historic returns in funds, making conservative mandates outperform more aggressive ones. These anomalous returns are leading investors to question their investment strategies. The key considerations are: “Will the next five years look the same as the past five years?” and “Will the unusual return profile of the past five years be repeated?”
Abandoning equities may not be the best option. If you have a long-term investment objective, you will most likely require some exposure to growth-assets to meet your goal. The best route is to stick to your financial plan, which was probably devised with a specific goal in mind. Along the way, you can adjust asset allocations slightly, and review whether your objectives are still relevant to reach your goals, but do this with the guiding hand of a trusted financial adviser.
Adapted article by Adriaan Pask – PSG