It’s easy to see why people might feel safer sitting on the side-lines, but staying in cash carries big risks of its own.
With cash losing value at a rate of 1.5% last year alone, many are seeing a silent, yet steady erosion of their wealth over time.
Governments and individuals globally are labouring under a weighty debt burden and the economic recovery remains fragile. Central banks are therefore likely to want to let a dose of inflation erode debt levels before making any big tightening moves that might harm consumer sentiment and derail growth.
The stakes couldn’t be higher for policy-makers and their inevitable caution bodes ill for cash. Several of the institutions on the WEALTH.com panel are warning that even when rates do finally rise, this will be more gradually and by smaller increments than ever before.
As long as governments and central banks are trying to balance their books and sustain economic recovery, returns on cash are likely to remain paltry.
Holding significant amounts of cash might feel comforting in an uncertain environment but a penchant for large cash weightings could cost you dearly.
Just as compounding magnifies gains, inflation can dramatically erode your wealth over time.
If today you had $1,000 and inflation ran at 4% for 25 years; your money would be worth just $368 at the end of the period.
When you see it like that, suddenly a large overweight of cash doesn’t look so safe anymore – does it?