![]() ![]() ![]() Inflation risk: While cash has no capital risk, inflation can erode its purchasing power – meaning you wouldn’t be able to buy as much with it in the future.Ĭash drag: During rising markets, cash struggles to keep up with other investments, creating a “drag” on your overall portfolio performance. Lower returns: Since cash is largely a risk-free asset, investors don’t get the “risk premium” that other investments, like mutual funds or GICs, may come with. For example, following the big market crashes in 1987, 2000, 20, investors who had cash could purchase assets at greatly reduced prices.Īsset Allocation: Having a cash position in your portfolio can add diversity, and diversification can be key to managing risk. Opportunity: Having cash allows you to take advantage of investment opportunities when you choose. That’s what makes it ideal for an emergency fund or a down payment. If you have $100 today, tomorrow you’ll still have $100. ![]() Zero risk: Cash comes with no capital risk. Liquidity: Cash, whether in the form of savings or chequing accounts, money market funds, or short-term deposits gives you ready access when you need it. Here’s a breakdown of some considerations when holding cash as an investor. 1 However, it can provide context when you’re looking at other investment options like GIC rates and past performance of mutual funds.Īnd now to the pros and cons. The Yearbook, which is a guide to historical returns published by the Credit Suisse Research Institute and the London Business School, looks specifically at cash returns versus equities and bonds. Over the last 123 years, Treasury bills (cash) produced an annualized real (USD) return of 0.4 per cent, global equities returned 5.0 per cent and bonds returned 1.7 per cent, according to the 2023 edition of the Credit Suisse Global Investment Returns Yearbook. While past performance doesn’t guarantee future results, cash has been shown to underperform assets like equities and bonds over the long term. During bull markets, holding too much cash can limit returns, while during market busts, cash can provide a cushion. This can be both its strength and its weakness. When equity markets fluctuate, cash is still cash its value doesn’t change just because markets are moving. While some assets like equities and bonds are considered to have an inverse relationship (when one goes up, the other typically goes down), cash marches to its own beat. Like equities, bonds, mutual funds, and guaranteed investment certificates (GICs), cash is a specific asset class with its own unique characteristics. There are two common sayings: “cash is trash” and “cash is king.” As with many things, the truth largely lies somewhere in the middle for investors. But from an investing perspective, cash can create much debate. It’s hard to imagine that holding too much cash could ever be a problem. ![]()
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