Investors are looking to cash in light of elevated risk on world share markets. Photo / Getty
With the world's share markets breaking record highs by the day, the temptation for investors is to shift funds out of shares and into short term fixed interest investments - cash.
So is cash king?
No, according to fund managers. At least not yet.
Nevertheless, an element of caution is overlaying markets at these levels, Greg Fleming, AMP Capital's head of investment strategy, said.
"We are running a reasonably high cash weighting because we are concerned that there is more risk of capital losses on the bond side of mixed portfolios," he said.
The same however, does not go for AMP Capital's view on equities.
"There is a bit of profit-taking going on but at the same time it's fairly short term, so those flows in and out of cash to equities tend to be quite short-lived," he said.
As far is Fleming is concerned, cash is a way off achieving royal status.
No fear
"There is no real fear in markets at the moment." he said. "We had a tiny dip in the first few days of January but the pattern that has been true over the last two to three years has been that those dips don't last," he said.
"There is a lot of cash on the sidelines that would like to be invested and it rushes in at any moment where there is any value," he said.
"It could well be towards the end of this year that cash is king compared to bonds, but at the moment cash has got such a low return anywhere in the world - 2 per cent in New Zealand - you have really got to be quite concerned to go into cash and away from equities."
Fleming said AMP Capital is has a mostly positive outlook for world equities for the year ahead. "We are quite positive but 2018 is going to be a a more volatile year than 2016 and 2017 because the market is very richly valued and people are primed for shocks," he said.
"There will be moments when people panic in short bursts, but our view is that the cental banks around the world are still providing liquidity and they will not want those short panics to turn into anything deeper," Fleming said.
Party on
Matt Goodson, managing director at Salt Funds Management, the headlines over the last few weeks have suggested that markets globally are starting to get "rather extended".
"Perhaps that's where that (cash) theme is originating," he said.
"There is a series anecdotal pieces out there suggesting that markets are getting quite extended, but course the hard part is that markets can stay quite extended for quite some time.
"Maybe you get lucky and go into cash at the very peak, or maybe you do that 10, 15 or 20 per cent too early," he said.
But Goodson agrees cash is still some distance off investors' radar screens.
"People may be starting to talk about it, but the way they are acting at the moment though is that this party is still in full swing."
So is cash king? "No. not yet. People are now just starting to talk about it, but they are sure as hell not acting on it."
US10-year spikes
One of the most closely watched graphs in the financial markets these days is the US 10-year bond yield, which this week broke through 2.7 per cent for the first time since April, 2014.
US10-year bonds ares seen as a bellwether for global interest rates, which have been abnormally low since the Global Financial Crisis.
Much of the New Zealand market's strong performance has been put down to its high proportion of dividend paying stocks, which have acted as a handy alternative to ultra-low yielding fixed interest investments.
Stocks in the US and around the world have exhibited nervousness after the 10-year yield spiked up to 2.73 per cent but SU 10 years are not expected to trouble equity markets until they move over 3 per cent.
The US Federal Reserve this week kept its fed funds rate unchanged in a 1.25 to 1.5 per cent range but stressed that further rate rises lie ahead.
Markets are picking a Fed rate hike to occur in March, following on from three hikes in 2017.
FAQs
Why cash is still king: investors take advantage of high interest rates and maximise flexibility. Cash is seen as the most attractive asset class moving into 2024, according to a new survey. But with interest rates forecast to drop, investors are likely to start reinvesting in risk assets soon.
How long does it take to get cash when you sell stock? ›
The standard settlement cycle for most securities is two business days, meaning if you place an order on Monday it should settle on Wednesday.
How long does it take for stock cash to settle? ›
For example, if you bought 1,000 shares of ABC stock on Monday for $10,000, you would need to have $10,000 in cash available in your account to pay for the trade on settlement date. According to industry standards, most securities have a settlement date that occurs on trade date plus 1 business days (T+1).
Will cash be king in a recession? ›
Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.
How close are we to a cashless society? ›
11% of US adults have completely stopped using cash, up from 5% five years ago (Source: Gallup) The average number of cash payments fell from 26% in 2019 to 20% in 2021 (Source: Federal Reserve) Between 2012 and 2022, cheque transactions declined by almost half (Source: Federal Reserve)
Will cash be obsolete soon? ›
Although paper-based currencies are becoming less popular, they will likely stick around for the foreseeable future. Dollars and cents may become harder to use, but as with many obsolete technologies, there are enough users to ensure demand doesn't disappear completely.
What happens if you sell a stock but don't withdraw money? ›
If you have a taxable (not an IRA, 401k or similar account) brokerage account and you sell stocks or mutual funds, you have "realized" a gain (or loss) and it must be reported on your tax return, even if your didn't withdraw the money form the account.
Can I sell my stock immediately? ›
Technically, there is no waiting period. You can sell a stock seconds after buying it. However, frequent day trading might classify you as a 'Pattern Day Trader' by the Financial Industry Regulatory Authority (FINRA), which carries certain requirements.
Can you just cash out your stocks? ›
Selling stocks can provide cash for major expenses or to reinvest in other assets. Steps to cash out stocks include determining investment goals, accessing a brokerage account, placing a sell order, waiting for the sale to be completed, and receiving the proceeds.
What is the 3 day rule in stocks? ›
The 3-Day Rule in stock trading refers to the settlement rule that requires the finalization of a transaction within three business days after the trade date. This rule impacts how payments and orders are processed, requiring traders to have funds or credit in their accounts to cover purchases by the settlement date.
While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
What is the T 1 rule in stocks? ›
When this new regulation goes into effect, institutions will now have one business day to settle. Thus, "T+1" refers to the requirement for securities trades to settle in one business day from the transaction date. Starting May 28, all securities that traded on a T+2 settlement cycle will transition to T+1.
Do millionaires keep their money in cash? ›
Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. They establish an emergency account before ever starting to invest. Millionaires bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth.
Should I hoard cash during a recession? ›
Make sure you have the time horizon to weather any losses, or hold your cash in stable assets like an interest-bearing savings or checking account, money market fund, or CD—especially if you're expecting a large expense or purchase in the short-term.
Should I cash out my stocks in a recession? ›
While selling stocks during a market downturn might make you feel better temporarily, doing so reactively because stocks are tumbling isn't a good long-term investment strategy. Volatility is a normal part of investing in the stock market, so occasional market selloffs should be expected.
How much longer will cash be around for? ›
From paper to polymer banknotes
We have been issuing banknotes for over 300 years and make sure the banknotes we all use are of high quality. While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.
Is cash King anymore? ›
Cash, long the king for payments, is falling off its throne as consumers worldwide gravitate to the convenience, ease and safety of digital payments. We are steadily progressing towards becoming a cashless society.
What will cash rate be in 2024? ›
At its February 2024 meeting, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.35 per cent. This decision supports progress of inflation to the midpoint of the 2–3 per cent target range within a reasonable timeframe and continued moderate growth in employment.
Will cash be used in 2030? ›
Analysis from Barclays Investment Bank, meanwhile, predicts that the global transition from cash to digital payments would reach a tipping point moment in 2025, when absolute cash usage would decline from 41 per cent in 2019 to 20 per cent by 2030.
/cloudfront-ap-southeast-2.images.arcpublishing.com/nzme/YBOGXTOIXSEOF7J6JTZRCHX2OQ.jpg "Stock Takes - When will cash be king? (1)")
