Given the constant headlines and the media, which makes you think the world is going to hell in a handbasket, sometimes it’s tempting to withdraw your investments and move to cash. If we are being honest, it has crossed all of our minds at one time or another.

However, time and time again, we have seen markets recover, and it often happens when you least expect it. Remember, “on average,” there are 251 trading days per year, and on average, the market only rises 53 days per year. So how do you pick the 53 days?

By moving to cash when markets dip, you are effectively crystallising your losses.

In the example below, I have used some data from the Global Financial Crisis – the “Big One”. Below, you can see that an investor who withdrew in May 2009 and went and stayed in cash never recouped their initial investment.

Sources: Cash: Bloomberg Ausbond Bill Index. Equity: Morningstar AU GR AUD. Data as at 30 August 2024.

Investors who withdrew and returned to the market after 1 year certainly made some gains. But those who stayed the course and remained invested through the volatility reaped the rebound returns.

Additionally, cash doesn’t grow in value. Inflation reduces the purchasing power over time. Cashing out means you commit one of the key cardinal sins of investing – buying high and selling low.

Rather than cash out, we and our investment managers use down markets as an opportunity to re-balance holdings and to consider when to next buy in.

If this has got you thinking, please feel free to contact us or call us directly on (07) 3391 1624.