Why Holding Cash Now is a Terrible Idea (if you ever want to retire)

Research in this video:

Long-Horizon Losses in Stocks, Bonds, and Bills

Credit Suisse Global Investment Returns Yearbook 2023 Summary Edition

Aswath Damodaran US Asset Returns

Financial Planning

DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice. Any opinions or assessments expressed are James’ own opinions or assessments, which are not affiliated with any third party. Any representations stated as facts or views based on such facts are relevant to circumstances applicable at the time of publication. This information should never be relied solely upon to make decisions, and James accepts no liability for any investment actions undertaken by viewers. Please seek regulated financial advice or an advisor if you require assistance. The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.

00:00 Intro
00:51 You’ve lost sight of your goals
09:08 High interest rates, higher returns?

DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice. Any opinions or assessments expressed are James’ own opinions or assessments, which are not affiliated with any third party. Any representations stated as facts or views based on such facts are relevant to circumstances applicable at the time of publication. This information should never be relied solely upon to make decisions, and James accepts no liability for any investment actions undertaken by viewers. Please seek regulated financial advice or an advisor if you require assistance.

James Shack™ property of James Shackell
Copyright © James Shackell 2023. All rights reserved.
The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.

[JamesShack]

There are a lot of people in the comments who seem to think they can time the markets, and get back in “when things look better”.

Here’s two investing quotes I think are appropriate:

“Fear has a far greater grasp on human action than the impressive weight of historical evidence.” - Jeremy Siegel

“Far more money has been lost by investors in preparing for [stock market] corrections, or anticipating corrections, than has been lost in the corrections themselves.” - Peter Lynch

[endcliffe]

I am 55, and love your videos, just checked and adjusted the risk profile of my pension after seeing your video explained so comprehensively, thankyou

[connorsdad]

James your videos are brilliant, always looking forward to the next one.

Thanks for all of the fantastic FREE advice so far.

[JamesShack]

It really is that simple ... if you don't look.

[joekuhnlovesretirement]

Great insight, graphics and narrative. Love your stuff. From Indiana USA.

[stewartliesnham]

As someone who's in their 50's, whilst I agree in principle, there is a big risk in looking at stock market returns over the last 20 years as they have been heavily juiced by QE and this might not be repeated. Also, if you parked all your investments as cash right now you could save up to say 2% in fees across advisor fees and fund management fees which is also a consideration as over time this makes a big difference especially when you look at the risk/volatility of global stocks. With the Sharpe Ratio of the global indices and SP500 being around 0.5, cash looks pretty good right now with two significant wars still adding to near term risk. Anyone under 50, I 100% agree with you, if you're over 50 I don't think it's quite as clear cut especially if 5-6% is 'enough' if you're not paying any other fees, or they are negligible. I mean, 6% return, no fees and little to no downside risk, what return would you need from stocks to not want to take that option?

[barrycook]

I believe you should generally have 3-6 months' living costs in "cash", then build up enough in pension as bonds for 2 yrs living costs by the time you retire. Everything else in stocks! Once you retire: if stocks are up, then sell them to live on; if stocks are down then sell the bonds to live on until the market recovers (at which point you sell stocks to bring the bonds back to enough for 2 yrs). I'd suggest as a rule of thumb that buying 10% to 20% bonds as your pension starts growing is good, then 80-90% is invested in higher growth stocks, but once you hit enough for 2 years' living then reduce bond investment to only enough to keep up with inflation.

[theMovieFlick]

I'm 23 and have been watching James regularly since September 2022. Coincidentally that was the same time I opened up a Vanguard S&S ISA account. I'm diversified across VUSA, VUKE and ESG... currently up 6.8% after DCA regularly. I plan to continue this for many years to come. Thanks for the great content James!

[shocks]

Excellent stuff very timely. Shared with someone who has been pushed to holding cash.

[samy]

by far the best video so far . I had to share with my husband who is too risk averse and thinks savings account are safer

[kitatit]

Thanks James, first time I have seen your channel. Great presentation, and clearly explained. Subscribed from Perth Australia. Cheers mate!✊

[howardparker]

An interesting article as always James. A few observations from my own circumstances. I have a Life Strategy fund and a basket of 12 sensible share options, some uk, some global. I retired in 2019 and am still waiting for my LS fund to return a positive above the capital, before I even consider some draw down on the fund. My shares have steadily decreased in value (some catastrophically so) to the point I am wondering if they will ever return to where they were. The dividends I am currently receiving would be handsomely outstripped in value by investing my whole share portfolio into a bond paying 5.95%. Yes the bond return may be different next year, but currently all my investments are haemorrhaging value at a rate where cash investing at least gives me more than dividends. Inflation is another concern, but money security has to be up there when financial planning(?)

[Witchblade]

Generally true, except now the Shiller PE is sky-high, so the equity premium may well be lower. Plus the risk of a crash is substantial according to many analysts (although they're often wrong).

[odilostark]

Many thanks James for this very good video. I have 2 comments. 1. The situation is significantly worse. Capital tax is often forgotten. in Germany around 27%. i.e. if inflation is 5%, the interest payments must be at least 6.8% to maintain the real value. 2. What prevents me from increasing my shareholding to eg 70% is my fear of major losses in value. How do I get this under control? Apparently knowing about the historical performance didn't help me!

[wgj]

Great advice. I am retired and have realised that derisking befpre retirement is just not on. When you retire your hopeful expectation of life is at least 20 years so why go safe just keep going for growth. You do need to pay yourself a "wage" from your investments so financially plan for say 2 rolling years of slow disinvestment to reduce the risk should a stock market decide to correct itself and buy perhaps some of those cash deposits paying interest which mature just in time to cover your wages.

[andyodoherty]

I do a daily check on the FTSE 100 Price use a chart to buy and sell XUKX yesterday my FTSE 100 chart showed good day to buy "Less than 25% (Strong Buy)" column FTSE100 was at 11.06% so I bought XUKX(long) and sold my XUKShort

[davem.]

There are lots of different opinions here and the simple truth is that there's no "one size fits all" solution. The best solution depends on the calculation of "years to retirement + years in retirement", so the larger the number (especially years to retirement), the more flexibility you have to accept risk in return for longer-term growth. My years to retirement = -1, so I have a need for stability and low risk until normal pension age, beyond which, I can accept a higher level of risk in the hope for better growth because the dependency on drawdown is reduced.
Both inflation and interest rates are likely to be relatively short-term, so comparing them to 130 years of equity growth is not valid. Similarly, most people are really interested in the next 20-40 years, during which there will be some significant ups and downs. "Don't try to time the market" may well be good advice when investing for the longer term but what about when drawing on those investments?

[minimad]

the issue of looking at your investments is spot on, I am still weaning myself off accessing my account but now down to once a week rather than daily. May take a few more months to get to monthly but I will get there.

[model.train.railway.]

Thankyou so much for advice on one of your previous videos. I am retiring early in July

[benpreston]

Great video as always James ... I was wondering how this holds vs property. I'm trying to understand whether it's better to hold on to a buy to let flat ... or sell it put the money into the house I live in and then put the 'saving' each month into my pension pot. It seems a hard one to properly judge.