Equity Schmequity – really?

There’s a conversation that does the rounds every 10 to 15 years in investment savvy circles; Cash vs Equity – which is better?

When markets are rallying, equities hold to their promise of higher returns than cash; when markets take a knock, cash suddenly appears to have been a hidden gem that could even outperform equities for a short period.

The reason why this conversation is cyclical is because the markets too are cyclical, whilst volatile they will turn around. From the middle of a down cycle there is always fear and panic that the markets won’t actually turnaround – but so far, they always have.

Like a rollercoaster ride, if you ride it enough times, you get to know the corners, dips and rises – but you’ll still feel surprise, panic and joy!

Some may be dismissing the prudence of equities, toting ‘equity schmequity!’ or ‘cash is king!’, but historically this rhetoric is myopic. If you look at the last fifty years of equities versus cash, for those who had the patience to stay invested, equities have outperformed cash 80% of the time.

This is precisely why a well-structured investment portfolio will typically have diversity in asset-classes (equities, bonds, listed property and cash) and exposure that is both local and global. It’s through this diversity and risk exposure that an investor is able to strategically leverage different market opportunities within their specific investment plan.

If you’re hearing conversations that are pushing cash over equities you can rest assured they will likely flip in the coming years. We will never be 100% certain, but we can follow the historic patterns that those who hold onto equities long enough will have a high chance of achieving their investment goals. Those investing in cash (money market instruments) do so with the understanding that they want early access to their funds and don’t have the luxury of time to ride out the markets.

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