Is it a Good Idea to be Invested in the Market Now?
The extremely quick rate hikes last year meant to tame inflation caused consternation amongst stock and bond investors, but it had the unintended consequence of making cash a decent parking place again. As a result, many investors are unsure about the best place to allocate their money; after all if safe cash-like instruments are offering yields that are high by standards of our recent history, why should an investor risk their capital?
The 6-month T-Bills benchmark yield hit a high of 4.36% on 30 December 2022. It has came down considerably since then — with the latest yield around 3.07%. Fixed deposit rates have also declined as reports show banks being flushed with cash. (e.g. Singapore banks are so flush with deposits that DBS loaned MAS $30 billion)
So if you were still worried about another leg down in markets (after all, the widely anticipated recession was predicted to occur in 2023) and stayed in the safety of short term cash-like investments you would have unfortunately;
experienced declining deposit and T-bill rates.
seen the double-digit return of markets in 1H23, and in the face of bad news no less!
Missing out on these gains can be disastrous for your long-term portfolio performance. Like the chart below shows — just a few days out of the market can make a big difference.
A well crafted investment plan can help guide investment decisions during times such as this. In addition, we can help you utilise a concept called liability matching to decide which portions of cash should be invested in which instruments.
A framework that you could use to think about allocation of cash could be:
Short duration cash (3 years or less) : T-Bills, Fixed deposit, Singapore Saving Bonds
Fixed liability Cash, for example having to pay for kids tuition or putting down a deposit for a house purchase in the near future: Fixed Deposit, SSB, fixed maturity high quality bond, fixed maturity single premium products, high yield savings accounts
Once (1) and (2) has been taken care of, the rest of cash that is still available would be discretionary cash meant for spending, saving, and investing. This pool of cash is most important to maximising your long-term wealth and should stay allocated into assets that can maximise its long-term growth, such as global equities, because studies have shown the persistence of markets to outperform cash.
Ben Carlson has a nice article for those who are always waiting for the right moment to enter into equities. He aptly said it, “Just make sure you don’t become addicted to your dry powder. Cash on the side-lines does you no good if it always stays on the sidelines.”
In the same way that you would not attempt a high risk activity such as sky-diving without professional supervision, investors can benefit greatly by relying on an adviser — having the peace of mind knowing that their plan is in the hands of a professional.
If you would like to get started on protecting and growing your wealth, click here to schedule a exploratory chat with us. (Complimentary 30-minutes session)