Investing Ideas

Could too much cash be bad for your clients' wealth?

The answer depends on whether the goal is liquidity or possible protection.

By: Nils Bierkamp Jonathan Cain Brian Donnelly David Hays

Updated: 11/22/2023

Key Takeaways

Cash has provided liquidity, but since 1950, it hasn’t offered the same protection vs. equity drawdowns¹ as bonds.
Since 1980, bonds have outperformed a proxy for cash² in the 12 months after the last Fed interest rate hike.
One theoretical guidepost for forward bond returns suggests the potential for a healthy return in the coming years.
An increased yield cushion has added protection against an absolute decline for the bond market in the past.

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Could too much cash be bad for your clients' wealth?

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1. Drawdown refers to a reduction in equity prices.  

2. A cash proxy is an asset class with return and liquidity characteristics that are similar to cash.

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Past performance is no guarantee of future results.

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