{"id":1467,"date":"2021-04-15T14:40:22","date_gmt":"2021-04-15T18:40:22","guid":{"rendered":"https:\/\/www.nepc.com\/private-wealth\/?post_type=newsroom&p=1467"},"modified":"2022-01-27T14:52:18","modified_gmt":"2022-01-27T19:52:18","slug":"fortune-cash-investors","status":"publish","type":"newsroom","link":"https:\/\/www.nepc.com\/private-wealth\/newsroom\/fortune-cash-investors\/","title":{"rendered":"Fortune: Why Some Investors Are Betting On The Most Staid Investment of All: Cash"},"content":{"rendered":"
[vc_row][vc_column width=”1\/1″][vc_column_text uncode_shortcode_id=”911659″]Karen Harding was featured in a recent Fortune article. View the article on Fortune’s site here<\/a>.<\/p>\n

<\/p>\n

For some savvy investors, the phrase \u201ccash is king\u201d has made a comeback. They’re ramping up a bet on the staidest investment of all, getting ready to pounce on opportunities at a time when they see overheated markets, and uncertainty ahead. The move is bold and can offer strong advantages if done right.<\/p>\n

How much cash should you carry?<\/strong><\/p>\n

Financial advisers traditionally have a rule of thumb: Keep three to six months of expenses in cash as an emergency fund as well as enough \u201cnear-term liquidity\u201d to cover foreseeable expenses over the same period, says Brian Price, head of investment management at Commonwealth Financial Network.<\/p>\n

\u201cFor me, basically cash in a normal market is transactions, emergency fund, and that’s about it,\u201d says Tom Smythe, professor of finance at Florida Gulf Coast University. \u201cProbably, 98% of your portfolio is in stocks and bonds,\u201d leaving 2% in cash.<\/p>\n

But current markets aren’t normal. The S&P 500’s P\/E multiple is the second highest it has been in many years, according to data from S&P Capital IQ.<\/p>\n

That’s leading some to alter their recommendations. \u201cI would say you’d probably want 5% to 10% in cash now,\u201d Smythe says. \u201cTypically, investors want to build their cash positions in times of anticipated market drawdowns,\u201d adds Lauren Goodwin, a multi-asset portfolio strategist at New York Life Investments. There’s also a lot of uncertainty, she notes.<\/p>\n

\u201cThe potential range of outcomes today we believe is wider than usual,\u201d echoes Karen Harding, a partner and private wealth team leader at NEPC. \u201cI am afraid equities are expensive and going to sell off.\u201d Cash offers the \u201cdry powder\u201d to bargain hunt, Harding says. If the S&P 500 dropped more than 30% as, for example, it did between Feb. 19 and March 23 in 2020, an investor could load up on stocks that will likely eventually head up again.<\/p>\n

\u201cWe have incredible amounts of leverage in the markets right now,\u201d said Robert S. Phipps III, director at wealth and portfolio management firm Per Stirling. \u201cI do think [bond] rates are
\nheaded higher. I do think inflation is headed higher. If the FAANG [major tech] stocks are hurt in higher rates, it will be harder for index investors to get a good return.\u201d Phipps upped his firm’s portfolio cash allotment to an unusual 30% for quick allocation in turbulent conditions. \u201cI want to have a lot of risk exposure when there is a strong availability of high risk-adjusted returns.\u201d He’s eyeing cyclicals as well as value stocks, which \u201clook better now for comparative growth than any time in my investing history.\u201d<\/p>\n

Avoid getting nicked<\/strong><\/p>\n

For most investors, selling off existing equities to take a profit and put the money into cash is probably unwise. Not only is there tax on capital gains, but for long-term investors even if there is a selloff shares are likely to eventually return to current levels. Meanwhile even if you foresee a selloff, timing the market perfectly is nearly impossible. \u201cIt could be like catching a falling knife,\u201d said Aviva Pinto, managing director of Wealthspire Advisors. \u201cYou may be buying in while the market is falling\u201d or selling shares while there’s still an upside.<\/p>\n

Under a cash-is-king strategy, however, new money like dividends, distributions, and additional savings could go into your brokerage settlement account for the times you rebalance your portfolio-selling losers, buying assets with more potential-to ensure optimum performance.<\/p>\n

Plus, having new money stay in cash \u201callows us to rebalance without having to sell positions in taxable accounts, thus avoiding unfavorable tax liabilities,\u201d said Sam Brownell of Stratus Wealth Advisors.<\/p>\n

There is a downside of cash: inflation. As prices generally go up, the value of money falls. Unless cash is parked in an account that offered an interest rate higher than inflation-high savings interest rates are well below 1%-inflation will eat away at your asset.<\/p>\n

In more normal times, much of the cash would go into fixed-income assets to balance equities holdings. But yields on what is supposed to be the \u201csafe\u201d part of a portfolio, generating income no matter what the current value might be, are hardly impressive. The difference in performance between fixed income and cash is so low that \u201cit’s basically a wash,\u201d Harding said.<\/p>\n

But with prices at or near historic highs, and many predicting they’ll come back to earth, cash does offer the ultimate contrarian bet: If stocks swoon, you’ll be poised to buy when everyone else is panic selling. [\/vc_column_text][\/vc_column][\/vc_row]\n<\/div>","protected":false},"excerpt":{"rendered":"

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