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Is cash the long-term answer?

By Guillaume Oberholzer, 23 January 2020

Cash is currently the preferred asset class for many investors, both before their retirement and after their retirement. Risk asset classes (shares and property) are sold to keep in cash and earn a low risk return.

The catch in the above is that interest on cash does not provide a sufficient return above inflation over the long term in order to provide a growing income. Many investors will be forced to buy back risk assets, at more expensive prices than they sold them, in order to achieve above-inflation growth.

What makes investors doubt the above logic, however, is the returns over the past 5 years.

Table 1

The five-year average of stock to end 2018 is 6% per year, with property at 1,21%. Together with the current market volatility and poor economic climate, cash looks much more attractive.

However, if we look at rolling 10-year returns since 2005 the picture looks different. Keep in mind that the returns of the last five years, as well as the recession of 2008, is included in the figures below.

Table 2

From the above it is clear that shares and property outperform cash over time. At present, many investors are at risk of not having enough exposure to risk assets within their portfolios and then buying them at more expensive prices at a later stage.

Historical performance is not an indicator of future performance, but cycles and trends repeat themselves. Will risk assets again deliver returns of 15% per year? No one knows, but the probability that they will outperform cash over time is very high. Prices for risk assets are at long-term lows. Don't miss the sale and certainly don't sell on the sale.

It is important to use a financial advisor that does not act on emotion and follows a long term strategy.

Please contact one of our expert advisors for further information.

The above-mentioned is for information purposes only and is in no way advice. Boshoff Visser Konsult (Pty) Ltd. encourages readers to get in touch with an expert financial advisor before making any decisions.