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“While it might feel safer going to cash when markets are volatile, cash positions don’t work like they used to. If you went to cash during the 1987 stock-market crash, you were still making 4.75% to 5.5% interest. If you had gone to cash in the dot-com crash you were making around the same—3.5% to 5.8% interest. Now, high-interest-rate savings accounts offer approximately 1.3% interest.
Fleeing to cash also carries the risk of missing out on a rebound in stocks—which is exactly what happened in April and May, as stocks returned to bull-market levels.”
Bailey McCann, “Investors Flock to Cash. Here’s What They Need to Know,” The Wall Street Journal, June 7, 2020
Our takeaway: The best way to reach your financial goals, even in volatile times, is to stick to your plan and your investment allocation. While it’s understandable that you will want to have access to sufficient cash and a selection of low-risk assets to meet your near-term spending requirements, take care to keep a meaningful portion of your portfolio in long-term investments that can generate both growth and income for your lifetime needs. For most people, that means thirty years or more in retirement.
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