When stock, bond, and currency markets are volatile, it’s understandable that investors see advantages in keeping more of their wealth as cash. And, of course, it’s essential to have cash to hand as an emergency fund as well as important to keep cash for your short-term needs.
But history shows that stock markets tend to bounce back quickly from geopolitical crises and deliver growth over the long term. So, it could also make sense to stay invested not just when markets perform well, but during more challenging periods too. Pulling out when they fall could mean missing out when they recover.
It’s worth remembering, though, that past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
Despite the current market volatility brought about by Russia’s invasion of Ukraine, we’re still seeing relatively solid fundamentals which should support investing – by which we mean things like economic growth, company cash flows and unemployment levels. This bodes well for investors.
However, when it comes to cash, the fact remains that if the interest paid on your long-term savings isn’t keeping up with inflation, you won’t be able to buy as much with it in the years to come. And with inflation rising by 6.2% in the 12 months to February and interest rates currently at 0.75%, that’s a very real issue right now.