In the long run, stocks beat cash. That’s a well-established fact.
But the problem with the long run is that it’s so, well… long. Over shorter periods of time, stocks can be quite volatile, like a roller coaster, and in those instances, cash can sometimes come out on top.
Take the past 2.5 years as an example. Our featured chart above displays how cash, represented by the Bloomberg US Treasury Bills 1-3 Month Index, has provided a solid 5.8% total return since mid-2021. In contrast, stocks, represented by the S&P 500 Index, have only managed a lower and more erratic 2.3% total gain over the same period.
More so, this chart vividly illustrates just how dramatic the ups and downs of the stock market can be for an investor. If you imagine a retiree with a $1 million portfolio invested in stocks, they would have seen the value of their investments swing by roughly $275,000 during these roughly 2 ½ years. For someone depending on their savings in retirement, that kind of fluctuation can be a real gut-wrenching experience.
The takeaway, therefore, is that this chart serves as a valuable reminder that in the short term, cash can be king. It also underscores why tactically allocating to cash during times of market turbulence can occasionally provide better returns and greater confidence for investors.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.