Michael Winchester, Head of Investment Strategy, explains how damaging it can be if you switch to cash, and why it could 'feel safer' but you may lose out in the long run.
The case study in this video is for illustrative purposes only. It is intended to provide general information only. It has been prepared and does not take into account your objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our product disclosure statement before making a decision. Past performance is no indication of future performance.
Global economic growth has slowed this year, led mainly by weak manufacturing and business investment. In early October, we had another bout of volatility in share markets. This was caused by surprising results in a key US manufacturing survey, that indicated we’re seeing the weakest condition since the global financial crisis.
It’s tempting to get out of the market during volatile times, but should you?
It’s difficult to ignore the media hype. And thinking about what might happen next can be worrying. Most of our members choose to ride out the ups and downs, but those who do switch, tell us that negative returns are the main trigger. Unfortunately, this can be costly.
During the global financial crisis of 2008, the extended period of market volatility caused some members to switch to more conservative options, like cash. This may have initially felt reassuring, as markets fell lower, but those members locked in an average loss of 8.5% at the time of switching.
And here’s the big red flag! Of those members who switched to cash, not many switched back, so they missed the rebound in markets.
Try to look past daily headlines
History shows, that members who stay invested in growth assets and stick to a long-term plan, end up better off than those who keep changing investment options. The good news is, you don’t need to worry about monitoring markets and managing your investment choices. We track the latest developments and adjust our portfolios within specified ranges, to make the most of market conditions, all with the aim of maximising your long-term savings.