Maintain diversificati on for risk managemen t Best risk adjusted

Maintain diversificati on for risk managemen t best

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Maintain diversificati on for risk managemen t Equity 5.0% 7.0% + Best risk- adjusted returns Bonds -2.0% 3.3% Record low yields = low returns Cash -1.0% -0.3% Cash is trash MacroSolutions Balanced Index 3.8% 5.9%
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Since 1925, the long-term return from local cash has been 6.7% per annum, which translates to a real return of 0.8%. This does not take tax or fees into consideration, Tucker says. “Once you start adjusting for that, you are barely growing your real wealth.” If one assumes a real return of 0.8%, it would take more than 80 years to double an investor’s real wealth, he says. The situation is even worse from a global perspective, where cash investors have historically gone backwards in terms of their real wealth. When comparing the performance of cash to other domestic asset classes including equities, bonds, cash, gold and property (the latter since about 1980) over a period of 90 years, cash has been the best performing asset class a mere 16% of the time – typically when markets correct quite sharply, Tucker says. Over historical rolling ten-year periods, cash has been the worst performing asset class 40% of the time. Tucker says while there might be value in holding cash tactically (for example when a market correction is expected), cash is “trash” as a long-term investment.
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  • Winter '11
  • dr.hatem
  • Graham Tucker

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