Rowling & Associates Blog

Time To Get Out Of Cash? Stocks? Bonds?

by Sheryl Rowling

In these uncertain times, clients and advisors both are seeking answers and predictions on how to invest. We always fall back on staying the course through diversification. But, what if it’s different this time?

The media loves to hype extreme positions.

After all, “staying the course” does not make for exciting news. If we listen to the media “experts”, we discover that our portfolios should avoid cash, stocks and bonds. Here are just a few examples: 

  • Former hedge fund manager, Dr. Steve Sjuggerud, recently stated “Cash in the bank used to mean something. But I’m telling you – it’s going to be a huge, huge source of regret in the months ahead.” In fact, he’s predicting a massive panic out of the banking system. A similar warning came from millionaire Bill Bonner in December 2016.
  • According to John Whitefoot, BA, in the Lombardi letter, based on Warren Buffett’s current indicators, the stock market is heading for a crash in 2017. Whitefoot cites Buffett’s Berkshire Hathaway record stockpile of cash and its indicator that the stock market is vastly overvalued.
  • In his column Real Money on TheStreet.com (December 2016), Tim Melvin answered the question of whether investors should buy bonds now with “Are you nuts?” He declared unequivocally that “It is not the time to buy bonds” because the risk-reward profile is “horrible.”

As trusted investment advisors, it is our duty to help our clients take emotion and fear out of investing.

There will be downturns. Long-term investors must accept that reality. However, without a crystal ball, we can’t predict when those downturns will occur. Moving to cash on the wrong day can be devastating to portfolios. The following Dimensional chart summarizes the risk of missing only a few days of strong returns.

If you're staying the course, you're never out of the game. Missing only a few days of strong returns can drastically impact overall performance.


Staying diversified allows the portfolio to recover from market drops fairly quickly, as shown by Dimensional’s graphic below:

How the a 60/40 Portfolio responds to crisis in after 1, 3, and 5 years

Is it different this time? There is always a chance.

Yet, if there truly is a total economic breakdown, I am not convinced that guns and gold would be an effective solution.