Issue No. 64 - April/May 2012
Time to reevaluate flight to cash
by Tony Catt
Sharemarket volatility and uncertainty have caused many investors to flee to the safety of cash.
While cash is an important component in any diversified portfolio, it is a low-risk, low-return asset class which is unlikely to provide the growth required to help you rebuild your long term wealth. This means it may be time for you to consider rebalancing your portfolio with higher returning - and therefore, higher risk - asset classes such as shares.
Four reasons to reinvest
As your financial adviser will tell you, attempting to ‘time the market’ - pick the best moment to invest or divest to maximise gains or minimise losses - is almost impossible. Actually, ‘time in the market’ is more important to the overall performance of your portfolio. This article outlines four good reasons to ensure you are following a properly diversified investment strategy that is in line with your long term investment objectives.
1) Global economic recovery is underway
After 18 months into the global economic recovery, investors are now faced with a situation where markets are neither cheap nor overly expensive. In other words, there are no longer obvious bargains to be found. Even though cash returns for Australian investors are attractive, investors should consider retaining a bias or heavier weighting towards equities.
2) A better year for equities is forecast
In the year ahead, some commentators believe equities are going to be among the best asset classes in which to invest. They are likely to provide investors with some modest returns, with forecasts in the high single digits. However, it is likely to still be a bumpy ride due to volatility caused by market risks. Some believe international equities may have greater earnings upside and more attractive valuations than the Australian market.
3) Other markets are also set to improve
Real assets such as real estate and infrastructure should also perform relatively ...