The cash is king playbook
by Cullen Roche, Pragmatic Capitalism
Weāre seeing something really unusual in the financial markets this year. Ā As Iāve noted recently, thereās almost nothing thatās working this year. Ā No matter where youāve diversified your savings youāve likely lost money with the exception of cash. Ā If we look at the two primary asset classes, stocks and bonds, cash has only outperformed both in the same year 10 times in the last 90 years. Ā So this is a pretty unusual event. Ā But thereās some potential good news on the horizon. Ā When this occurs both stocks and bonds tend to bounce back very strong.
In the 10 times this has occurred in the last 90 years stocks have followed up with average 1, 2, and 3 year returns of 14.34%, 18.76% and 16.72%. Ā Bonds have done a bit worse with a 1, 2 and 3 year average return of 10.24%, 7.7% and 6.17%.
A balanced portfolio has also generated abnormally high returns with a 1, 2 and 3 year average return of 12.29%, 13.23% and 11.44%.
As is often the case with diversification, itās not timing the market that counts. Ā Itās time in the market. Ā So, while cash looks particularly smart today the historical figures say that cash wonāt be king for long.
