When Times are Bad Cash is Good

The economy is not doing as good as it could be or should be and this can be a source of angst for many investors. Many investors decide at these times to hold onto their cash and to look to investments that they perceive as being the safest. These include cash and bonds.

An economic downturn in investor speak is known as a bear market. When the market is in bear mode investors can become confused, frightened and not sure what they should be doing with their money. That is why at these times they reason that when times are bad cash is good.  

The economy is not doing as good as it could be or should be and this can be a source of angst for many investors. Many investors decide at these times to hold onto their cash and to look to investments that they perceive as being the safest. These include cash and bonds.

An economic downturn in investor speak is known as a bear market. When the market is in bear mode investors can become confused, frightened and not sure what they should be doing with their money. That is why at these times they reason that when times are bad cash is good.  

What many investors do not realize however is that the markets do fluctuate and they will sometimes do better than others. For those who wish to invest they must learn that to every rise there is also a fall. What they must also learn is that when times are bad this can present an excellent opportunity to invest. Don’t be shy or afraid and don’t hoard your cash for fear of losing it all. What goes around comes around after all.

A well designed asset allocation policy for example is not concerned with market timing and is directed at the long-term. When you mix up your investment styles, asset classes, geographic regions and capitalization ranges (such as cash, various types of stocks and bonds) you can come out on top during difficult economic times.  

Common Errors of Investors

When a bear market is occurring there are some common mistakes that many investors make. If you become aware of them then you can help prevent yourself from making them. A classic one is to try to time swings in the market when things are not going so well. Will it getter better or worse? Will it go up or down? Even financial experts and advisors cannot always accurately predict market swings. It is very hard to predict with any level of accuracy or consistency. What experts have discovered about bear markets is that they can make investors crazy if they try too hard to be market timers.

Another common error is investors who dig in their heels and are stubborn about making any changes in their portfolio. They hold back out of a sense of anxiety and fear. That is why you need a quality investment manager who has your best interests at heart and knows his or her business inside out.  During times of economic unrest you need to dispense with any investments you have in your portfolio that are uncertain and downright shaky. You need to focus on the long-term and invest your money into portfolios that are sound.

When times are bad, cash is good. Right? Maybe but maybe not. Another classic error that many investors make when the markets are not good is to convert all or most of their assets into cash because they feel that this is a safe and strategic move. On one hand it seems very smart and wise because the cash is not going to lose you any more cash.
However if the cash assets you have are earning an interest rate that is in the area of two percent and inflation is about the same then the cash investments that you feel are so safe are actually only breaking even, and not earning any type of profit for you  whatsoever. This is a problem that many investors do not foresee. Inflation matters a lot when you are talking about cash assets.