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Are Stocks Safer Than Cash?

The amount of cash sitting on the sidelines is at an all-time high, and it appears that many investors prefer the safety of cash to stocks. But how do the risk profiles of both change over time, and could these investors be at risk?

The chart below is from a recent Wall Street Journal article depicting the record amount of cash currently sitting in money-market funds and CDs1

We’ve argued for many months that this “dry powder” could be deployed into the stock market as early as this year and be a potential source of added fuel to this equity bull market. The author seemingly agrees.

However, what surprised me was how many young Americans interviewed for the article were happy with the yields currently offered from cash. Aside from taxes and inflation wiping out most gains, there’s a deeper concern with this sentiment.

The visualization below is from Brian Feroldi, a well-respected author with a gift for simplifying financial concepts2.

In the short term, stocks are indisputably riskier than cash. Nobody knows where the equity market will go over the next 12-18 months, stocks are very volatile, and trying to time the market is a fool’s errand. But the tables turn over time because stocks offer a higher expected return, protection from inflation, etc.

Charlie Bilello at Creative Planning quantifies this “risk shift” in the two charts below. The first shows the odds of cash beating the stock market fall quickly. Over one year, cash has a 31% chance, but in any 10-year period, the odds move down to 15%. In every 25-year period going back to the Great Depression, the S&P 500 has beaten cash3.

The second depicts the cost of sitting in cash, and it’s been astronomically high. The average opportunity cost of holding cash over a one-year holding period has been 8%. Over 30-year periods, this cost grows to 2,124%4. That’s simply devastating.

Add it all up, and investors enjoying the historically high returns in cash today could be setting themselves up for a long road ahead by falling victim to the famous words from Johann Wolfgang von Goethe:

“The dangers in life are infinite, and among them is safety.”

The bottom line is that cash is an indispensable tool that must be included in every financial plan. Use it for near-term expenses and as a safety net. But if the goal is to grow over any period longer than a couple of years, cash has historically done little more than lose money safely. 


Brian Malizia, President

Mike Sorrentino, CFA


1 https://www.wsj.com/finance/investing/the-8-8-trillion-cash-pile-that-has-stock-market-bulls-salivating-0a1b4a8c?mod=hp_lead_pos7

2 https://www.linkedin.com/in/brianferoldi/

3 https://twitter.com/charliebilello/status/1749077752047644795

4 https://twitter.com/charliebilello/status/1749084271694754134

5 Total Real Return on Stocks and Bonds from Stocks for the Long Run, 1802-2012


This newsletter/commentary should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.