Welcome to the Chart of the Week.
This week’s chart highlights the beginning of a change of direction for developed-market central banks. The European Central Bank is the first of the top-tier central banks to begin cutting interest rates. While this will be welcome news for many, it’s not good for everybody.
While it’s often said that ‘cash is king ‘, it’s crucial to question this belief. Is it a sound investment strategy, or could it be a form of wishful thinking?
As the chart below illustrates, major incidents are a harsh reality in the world. These events often prompt retail investors to seek refuge in cash, as was the case in 2022 when interest rates rose, and markets sold off. Higher interest rates gave investors an added incentive to cash out of investments and to opt to hold cash.
As interest rate cuts are now underway, the level of interest you receive on cash also falls. So, is holding cash still the best option today? The long-term benefits of investing versus holding cash are plain to see.
Peter Lynch, a respected investor, once famously remarked, ‘In the stock market, the most important organ is the stomach. It’s not the brain’. This quote underscores the crucial role of emotional resilience and risk tolerance in successful investing. It reminds us that enduring market fluctuations is a prerequisite for making a lasting impact. This is not a new concept, but the challenge lies in adhering to it, as many cash investors will eventually realise.
Perhaps you are thinking, this doesn’t apply to me as I only invested in cash last year; think again! Below you can see the performance of some of the major global benchmarks over the last year versus one of the cash funds which we have on our buy list (just to be clear, we are underweight cash in our portfolios today, as we see lots of opportunities in markets):
Takeaway: Stick to your financial plan.
Did you know: Taiwanese contract chipmaker TSMC, whose major clients include Nvidia and Apple, said on Tuesday it had held talks with some customers about moving its chip plants off the island as tensions mounted with China, but such a move would be impossible. Click here.
Marlborough Podcast: This week, we discuss stabilising inflation, moderating growth and potential rate cuts. Click here.
Marlborough Commentary: In our quarterly commentary, we cover market bubbles to the AI boom. Click here.
Marlborough Blog: Andrew Shaw, our Japanese analyst, unveils why we are overweight Japan. Click here.
Author: Nathan Sweeney, CIO Multi-Asset, Marlborough Group
Source: Marlborough Multi-Asset Investment Team, Trading Economics, Trading Economics, Quilter, Morningstar, Reuters.
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