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Why Cash is Not Always King

YTD Market Performance through June 30

We have now passed the mid-point in the year, and inflation, rising interest rates, war, fuel prices, and lingering supply chain issues continue to contribute to downward pricing pressure on stocks, bonds, and the value of cash.  Here are the year-to-date returns for the major Market indices through June 30th:

Dow Jones Industrial Average (-15.31%)

S&P 500 (-20.58%)

Russell 2000 (-23.43%)

NASDAQ (-29.51%)

Vanguard Short-Term Bond Index (-4.57%)

Vanguard Intermediate-Term Bond Index (-10.60%)

Why Cash is not Always King

During periods of market declines, the temptation for many investors is to “ride out the storm” by selling equities and sitting in cash on the sidelines.  This emotional instinct often causes investors to miss out when the inevitable market rebound takes place.  As we have discussed in previous communications, no one knows when the stock markets will rebound from current declines, but history teaches us that the rebound will come rapidly and unexpectedly when few expect it to happen.

Historically, US equity returns following sharp declines have, on average, been positive.  A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over 1, 3, and 5 year periods following steep declines.  Cumulative returns show this trend to striking effect, as seen in Exhibit 1 below.

If market volatility remains high throughout the rest of the year, we will continue to look for opportunities to add value to your investment portfolios through rebalancing, tax-loss harvesting, and putting new cash to work in the markets while prices are down.  Our faith in capitalism and human ingenuity to solve any problem facing humanity remains unwavering.

As always, please reach out if we can be of assistance! 

- Your DecisionPoint Financial Planning Team -