Cash is King?

Are we getting closer to the point when holding risky assets may be more rewarding than cash?

Recently you may have heard “cash is king,” an expression that refers to the fact that holding cash is the best thing to do when risky assets are falling in value, as they have been during the recent bear market. It may be true that cash has been the safest place to keep one’s savings in recent months. But with everyone wanting to reduce expenditures and hold cash, deposit yields have fallen to close to zero. So you’re hardly getting any return any more for holding cash — in fact, after taking account of inflation, returns might even be negative.

At the same time, the price of risky assets such as corporate bonds and equities has fallen, and they now offer attractive yields — much more attractive than the yield on cash deposits. True, the price of risky assets can fall further in the short term, and if companies cut their dividends the yield on their shares will not be as high as was thought. But we are getting closer to the point when holding risky assets may be more rewarding than cash in the bank.

Thinking about revising your current portfolio?

Here are some questions to consider when establishing, or revising, your investment plan with your Financial Advisor:

• What are your investment goals and needs?
• How old are you?
• How strong is your financial position?
• How high is your tolerance for short-term volatility?
• To what extent do you need to be able to convert your investments into cash at any time?
• When will you need the money you have invested?
• How much diversification should you seek?
• What sort of investment style is best for you?

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