CIO believes that investors should move quickly to put cash to work in a balanced, well-diversified portfolio. (UBS)

As if these concerns weren’t enough, stock market valuations (especially in the US) are already at elevated levels, suggesting that markets are being complacent about risks and may be priced to deliver lower returns going forward.


Despite this backdrop, we believe that investors should move quickly to put cash to work in a balanced, well-diversified portfolio. Here are 10 reasons why investors should stay invested instead of retreating into the perceived safety of cash:


1. A balanced, well-diversified portfolio is resilient to shocks. In 2022, stocks and bonds fell in tandem, which is an anomaly that has only happened in 2% of 1-year periods since 1926. In 2023, as expected, stocks and bonds have exhibited their usual diversifying properties. If economic growth continues to be strong, we expect this to support stocks but create a headwind to bond returns. In the event of a recessionary shock, we expect bonds to provide significant protection against stock market losses.


2. Bonds are likely to outperform cash. Cash looks attractive due to higher short-term interest rates, but these levels aren’t likely last for long. Investors with excess cash holdings are subject to reinvestment risk, which means that they may receive dwindling cash flows from their investments as rates fall.


3. It is time to lock in high yields before they decline. Bonds offer a way to lock in current yields in case rates fall due to recession fears. Unlike cash, bonds can enjoy significant price appreciation if rates fall. In fact, US government bonds have outperformed cash in 97% of all 5-year periods where the yield curve was inverted (as it is today) with 2-year Treasury yields higher than 10-year Treasury yields.


4. Bonds offer better protection during economic downturns. Bonds have an important role to play in a portfolio, particularly in times of uncertainty, and they have historically offered better protection than cash.


5. Market timing can do more harm than good. In the long term, staying invested performs better than hoping to buy on a market dip—particularly if you’re putting cash to work in a balanced, well-diversified portfolio.


6. Markets are more resilient than you may think. Historically, stocks and diversified portfolios have a strong track record of outperforming cash and inflation. Markets tend to recover very quickly from sharp declines, so it’s a good idea to put cash to work when one occurs.


7. Hedging strategies can help to cushion the downside. Commodities and select hedging strategies can help to protect portfolios against risk.


8. Alternative investments can help to diversify portfolios. Proper diversification goes beyond just equities and cash, and it should include alternative assets such as hedge funds and private markets.


9. Dynamic asset allocation can help to protect against losses. Stocks tend to perform well when they have strong momentum, and more poorly when momentum is weak. Historically, we have seen strong returns from a systematic allocation strategy that increases the allocation to fixed income during periods of weak stock market momentum.


10. The true risk is failing to meet your goals. At the end of the day, the true risk is failing to meet your goals. We recommend using the Liquidity. Longevity. Legacy. framework to align your portfolio with your investment goals both in the short and the long term. Cash can play an important role in meeting short-term spending needs, but it’s a poor tool for growing wealth over the long term.


In our view, it makes sense to build up a Liquidity strategy (comprised of cash, high-quality bonds, and borrowing capacity) during bull markets, so that you can deplete these reserves (instead of locking in losses in your long-term investment portfolio) during a bear market. We’re currently recovering from a bear market that began last year, so in our view this is a good time to be drawing down your cash reserves. After all, markets have historically staged a full recovery from their bear market losses within 3-5 years, and we are nearly than 2 years past the last bull market peak, set in January 2022.




To learn more about our approach, visit the UBS Wealth Way website .


UBS Wealth Way is an approach incorporating Liquidity. Longevity. Legacy. strategies that UBS Financial Services Inc. and our Financial Advisors can use to assist clients in exploring and pursuing their wealth management needs and goals over different time frames. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved. All investments involve the risk of loss, including the risk of loss of the entire investment. Time frames may vary. Strategies are subject to individual client goals, objectives and suitability.