PERSPECTIVE3-5 min to read

Cash vs investing: 5 key points to consider when talking to clients

The cash debate is a perfect example of where advisers deliver value to clients. The question of ‘should I invest in cash?’ is not straightforward, but for the longer-term saver, all the data points to investing being the best option for many.

31/08/2023
Tier 1_Business

As a financial adviser, you may have clients who are wary of investing in the market, particularly now as cash savers are benefiting from the highest returns in almost two decades. You are not alone! The most recent UK Financial Adviser Pulse Survey carried out by Schroders, revealed that 90% of advisers said they had been having conversations with clients about the relative merits of investing and cash savings products.

Here are five key points to consider when talking to clients about cash vs investing.

The risks of locking up cash

While a 5% interest rate on cash might seem attractive, this comes with its own risks. These rates are usually available to investors willing to lock their money up for more than a year. By locking up their cash, clients are not exposed to assets that have a record of beating inflation over the long term and risk missing periods when investments rise sharply, which are often sudden and unexpected. Missing these periods can significantly dent long-term returns.

Is your client a long-term investor?

If the answer is yes, history suggests that cash is not the place for them. If we consider US data since 1926, cash has only beaten inflation by a mere 0.3%. Equities over the same timeframe have delivered 7% above inflation on an annualised basis. The data also shows that holding equity investments for long periods can greatly reduce the chance that clients will lose money. If an investor had only invested for one month over the past 100 years, on average they would have lost money in real terms around 40% of the time. If they had invested for between 5 to 10 years, this falls to 20% and if you extend this to 20 years they would not have lost money over any period when adjusted for inflation. [1]

So if your client has long-term objectives for their money, there is a clear case for investing some of it in equities, if they’re prepared to experience some ups and downs along the way. Please bear in mind though that past performance does not guarantee future performance. The value of investments can go up and down and you may not get back the amount originally invested.

Timing the market is difficult

One of the most important aspects of investing is spending time in the markets rather than timing the markets. History shows that timing the market is very difficult and rarely works in the long term. Schroders have looked at some of the largest falls in markets and the length of recovery. In the eleven previous occasions when the US stock market fell by 25% or more, it has taken an average of 1.8 years for the stock market to recover. If clients had moved to cash in these instances, it would have taken, on average, more than double the time to recoup their losses. [2]

Don’t put all your eggs in one (cash) basket

Investors in a typical 60:40 portfolio of equities and bonds experienced one of their worst years on record last year. However, periods when equities and bonds lose money at the same time have been rare and we expect them to remain so. Bonds, despite being particularly weak last year, can perform two roles: diversification and income. Over the last decade, against a low and steady inflation backdrop and record low interest rates, bonds provided very little in terms of income but were a very effective diversifier to equity risk. With higher uncertainty around inflation, bonds now provide fairly attractive interest rates and can earn a relatively healthy income for portfolios.

We are all inherently loss averse, especially when it comes to our hard earnt cash

It’s a natural behavioural response to be loss averse; we have an aversion to losing money. However, timing the entry and exit points of markets perfectly is nearly impossible, it therefore remains important to develop long-term investment goals, build a diversified portfolio across multiple asset classes and stick to the investment plan by reducing as much of inherent behavioural biases as possible.

Clients need to be honest with themselves about their willingness to accept potential losses in their investments for the possibility of higher returns. Understanding and maintaining a financial plan set with a financial adviser is crucial.

The cash vs investing debate is an area where many clients will benefit from ongoing support. Through discussing the question with your clients, you can deliver the ‘peace of mind’ that they seek, as well as helping ensure their investments are in the right place to meet their financial goals.


[1] Source Morningstar Direct, accessed via CFA Institute and Schroders. Stocks represented by Ibbotson SBBI US Large-Cap Stocks. Data January 1926-December 2022.

[2] Source: Robert Schiller, Schroders. Monthly data 1871-2020. Data is for S&P 500 and assumes investors retained their exposure to the stock market.

Important information

The views and opinions contained herein are those of Benchmark. They do not necessarily represent views expressed or reflected in other Benchmark communications, strategies or funds and are subject to change. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable, but Benchmark does not warrant its completeness or accuracy. The data has been sourced by Benchmark and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. Benchmark is not responsible for the accuracy of the information contained within linked sites. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

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