Equity Trustees debates the pitfalls of cash investment
Current debate about investors shifting to bank deposits does not highlight the capital risk associated with it, especially in the case of long-term investors, according to Equity Trustees head of asset management Shaun Manuell.
"Long-term investors in particular need to be very cautious about moving out of growth assets into cash for a number of reasons," he said.
Manuell said investors need to be aware that a "no risk" bank deposit approach to capital, while ensuring there is no short-term capital loss, also ensures there is no possibility of capital gain.
"Being massively overweight in cash guarantees that the purchasing power of existing capital will be eroded by inflation in the medium to long-term," Manuell said.
Short-sighted investment strategies are detrimental to long-term needs, and investors waiting for favourable market conditions do not fully understand the ramifications of sitting on the sidelines, according to Manuell.
"Few investors are able to pick market highs or lows, and anyone who thinks they can sit on their cash for now, and then buy into the market in good time for the next rising market, is likely to find it is an approach that will cost them dearly," Manuell said.
He said the best strategy for long-term investors remains one of diversification to take advantage of growth and to provide some protection from inflation-based capital erosion.
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