Right now it is becoming trendy to say “I would have been farther ahead buying a GIC five years ago”. However if you are going to measure 5-yr periods, you don’t get to pick the exact starting and stopping points after the fact. You would have to make that decision before the verdict is in.

Yes with the luxury of hindsight, many investors wish they had been in cash over the past year. So they are making the mistake of plowing their money into cash now. That may feel good over the next few weeks or months, but how about three years from now and beyond?

You may hear this and say, “Yeah, but things have never been bad like this before. Well, not precisely like this, but things have been plenty scary before. Rather than listening to the media drones or market analysts (who never saw this coming and have no clue where it is going), why not listen to a true investment genius. Here is Warren Buffett’s take on today’s crisis:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

“You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”‘

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Randy Cleary

Randy Cleary is an Investment Advisor and owner of MatRx Financial Group. He is the author of Investment Advice for Entrepreneurs, an online information resource for small business owners and entrepreneurs.

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