Fear of Equities, Cash is King

Fear of Equities Drives More Investors to Cash - NYTimes.com: ". . . . He suggested cash could be a safety net for some. For others it could be money held in reserve for a future market decline. Still, Mr. Clemons sees continued value in holding cash, even though it neither grows nor offers a return like other assets. “If you believe future volatility will increase, the option value of cash increases and outpaces the return on a money market fund,” he said. “It’s a little theoretical, but it represents potential buying power.” Yet he drew a line at 50 percent of a portfolio in cash because of the impact that even moderate inflation would have on that money. At 2 percent inflation, for example, $1 million would be the equivalent of $615,000 in 25 years. Whatever the outcome, for Ms. Duncan, investors clinging to cash around the world confirmed her belief about the magnitude of the psychological effect of the financial crisis. “We are accustomed to thinking about other crises like the dot-com crash,” she said. “In this case investors haven’t come back because they were painfully affected by the financial crisis. It’s interesting to see if the buy high/sell low pattern comes into play in a couple of years.” Until then, the mattresses may stay stuffed."

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