Investors should be greedy when others are fearful, and fearful when others are greedy. – Warren Buffet.
A defensive move into cash is likely to lead to significant losses for investors.
The investors who hold cash over equities since the 2008 financial crisis and brace themselves for macro-economic headwinds are not choosing a risk-free option, said Shroders fund manager Thomas See.
He said: “In 2009 you had plenty of people worrying that markets would fall further, but the worst thing you could have done would have been to go into cash.”
Cash has a real negative yield amid inflation and forecasted sustained low interest rates, and long-term investment is even more important despite pessimistic markets.
“I’m not going to stand here pretending volatility doesn’t exist, because it does and will always be there,” he added. “However, history tells us that equity markets always revert back to the mean.”
He argued the model of mean reversion has stayed the course for the last 140 years, citing the S&P 500 annual return since 1870 which shows there are cumulative returns to be had, even when market sentiment is at its worst.