Select Page

Investors are sitting in cash. Consider the following news items from the financial services industry…advisor-peter-smith

In July, Morgan Stanley’s wealth management unit reported a 1% drop in profit margins. UBS reported a 16% profit margin decline in the second quarter. A June Merrill Lynch survey indicated the industry’s wealth management firms are missing out on income with the largest collective cash allocation by their clients since 2001.

Why do investors go to cash? How come Financial Advisors at Morgan Stanley, UBS, and Merrill cannot keep them invested?

Some of the reasons may be:

  • Fear of another bear market
  • It feels safe
  • A lack of faith in long term asset class returns

It does take courage to be a successful investor and it may help to have a healthy dose of fear about a cash position. Core inflation which excludes food and fuel is registering 2.3%. (Bloomberg – June 2016). Right now, you can get 2.0% interest on a 5 year certificate of deposit[1]. This is the equivalent of locking your money up for 5 years and losing .3% in purchasing power every year. If inflation ticks up before the CD expires, this negative scenario will be amplified.

But, let’s look at some other asset class trends year to date[2]:

  • The S&P 500 with dividends reinvested is up 8.5%
  • International stocks (MSCI EAFE NR USD) are up 2.0%
  • Emerging Markets (MSCI EM PR USD) are up 14.15%.
  • The US Energy Sector index is up 17.8%

Why would you increase your cash position in the face of these market gains? In a diversified portfolio, why would you not be rebalancing the portfolio from US stocks who have been on a great run since 2008-2009 (and are now in an overvalued range) into these other undervalued asset classes that are just now starting to show strength. By the way, none of these trends surprise us. We utilize two long range asset class forecasting firms in our analysis of the markets and have positioned our clients’ portfolios accordingly.

Some final random thoughts on investing in times like these; the investors that sold their energy positions when oil was approaching $20 per barrel have managed to “lock in” a loss as oil now sits at $47 per barrel. Sitting in cash at .8% when facing a 30 year retirement is scary when inflation kicks back in. Anyone remember interest rates in the 1970s? 10% to 14%. In that kind of environment, I want to be in asset classes that do well in times of inflation vs. sitting in cash and watching the loss of the purchasing power of my dollar bills. The flip side of that is if you were smart enough to refinance your house and other properties you may own at today’s very low rates, I suspect in a few years you will be patting yourself on the back. Paying for your investment with “cheaper dollars” down the road.

Diversified investors with the courage to stay invested will reach their goals. For others, it may be like those excuses after that poor golf round; “Should have, Could have, and Would have”. How are you putting your cash to work?

[1] – 8/25/2016
[2] Morningstar – 8/24/2016
*  *  *  *  *  *  *  *  *  *

Peter B. Smith is a Family Wealth Advisor at the Planning Solutions Group in Fulton, MD ( and is an Annapolis resident. He can be reached at 301-543-6008 or by email at