In the uncertain and volatile economic climate of 2023, investors are turning to cash as a safe haven. According to a recent survey of 404 professional and retail investors, two-thirds of respondents believe that holding cash in their portfolios could enhance rather than hinder their performance over the next year. This trend reflects the fear of a potential bear market, continued rate hikes by the Federal Reserve, and an impending recession that are making investors nervous.
Cash as a Safe Haven
With the current yields on short-term government bonds at their highest since 2001, cash is becoming an attractive option for investors. High yield savings offer an interest rate close to 4%, beating the classic 60/40 portfolio of stocks and bonds. However, holding cash carries the risk of losing ground to inflation. Rachel Elson, wealth advisor at Perigon Wealth Management, points out that it’s essential to consider the potential impact of inflation and ensure a long-term investment strategy that takes these factors into account.
Active vs. Passive Investing
In the current economic climate, most of the money investors will likely invest in passive funds rather than actively managed mutual funds. Only 17% of respondents said an actively managed large-cap U.S. stock mutual fund is highly likely to beat a passive fund that tracks the S&P 500, after fees, in 2023.
When professional investors were asked whether they plan to increase their exposure to active funds, passive funds, or international investing this year, the most popular answer was international exposure (47%), followed by increasing investment in international funds. passive funds (37%) and the increase in investments in active funds (30%). On the other hand, retail clients are more likely to invest in passive funds (46%), followed by international investments (38%) and actively managed mutual funds (22%).
Conclusion
In conclusion, while cash remains a prudent choice for investors concerned about the future, it’s important to consider the disadvantages of holding large amounts of money in cash over the long term. Investors should consider their personal financial goals and risk tolerance when deciding how to manage their money. The right balance between cash and investments can help investors meet their financial goals in 2023 and beyond.
