We can really relate to this analogy – You are waiting in the departure lounge for your 3 hour flight to your favoured holiday destination, hearing the news there will be a potential 2 hour delay. Will booking a taxi and the train get you there quicker? If the answer is yes, then you should move your assets to cash.
Taxis & trains are for short journeys and aeroplanes are for longer journeys, hence cash vs equities. If you aren’t shortening your journey, then wait in the departure lounge for your flight to be called. The general consensus is that interest rates are either peaking or have peaked. If this is true, 5.00% cash interest return is unlikely to be available in say 12 months. Assuming interest rates do start to fall, at that point, you either have to accept a lower interest rate on cash or start investing in risk assets again. However, what will happen to risk assets between now and the point you reinvest your cash savings? Evidence tells us financial assets will outperform cash over the medium to long term (and most short-term periods too).
It is hard to stay seated sometimes, even when the captain tells you to. This is why one of the simplest ways to stay invested is by creating a portfolio that you would be willing and able to hold during both bull (a market where prices are rising or expected to rise) and bear (opposite to a bull market) markets. Something that we would have considered very carefully before implementing your financial plan. The whole point is to find a portfolio mix that can help you sleep at night whilst being mindful that risk is necessary for most people to achieve their goals.
Long-term investors will, dare I say always, have a higher probability of success than short-term investors. The longer your time horizon, the better your odds are at seeing positive outcomes. A high probability for success based on historical returns is no guarantee but we truly believe there are no better alternatives. Trust the markets, resist a sell off and focus on your medium to long term destination.
Risk Warnings:
The information contained in this article is intended solely for information purposes only and does not constitute advice. The price of investments and the income derived from them can go down as well as up, and investors may not get back the amount they invested. Past performance is not necessarily a guide to future performance.