Breaking Down Why Cash Can Be a Good Investment In Volatile Markets
March 21, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Darrin Cohen, and I am the CEO of Wealth E&P.
We’ve got some good news! We had a nice breather in the markets last week, with upside returns in all three indices. Right now, we're watching to see if that up-trend will continue and we can get more aggressive, or if this is what we call a "dead cat bounce" and we'll see a decline from here. We're certainly watching that very carefully for you.
We've gotten some questions recently about why we're holding some cash in our portfolios, and the answer is really three-fold. For one, our All-Weather score did de-risk all the way down to moderate-conservative; it's ticked up a little bit to moderate this week.
We can also look at the underlying models themselves, with the first one above being our Artificial Intelligence model. At the beginning of this year, it crossed over into negative territory; the model currently sits at -1.57. This model looks at 16 different factors and aggregates that all together into this score (the StormGuard). The StormGuard tells us if we want to be in the market or not right now. The StormGuard Indicator, along with our Relative Strength and part of our Economic indicator, has us out of the market and de-risking on volatility.
However, the other question we've gotten is: when we're out of the market, where do we go, and if we're in cash, why is that? We look at several different possibilities when we get out of the market. We do consider just straight cash, bonds, commodities, and other forms of fixed income. We are looking to see where we can get some safe alternative returns. Right now, we haven't felt safe in the bond market.
As you can see in the chart above, those bottom negative numbers are the AGG, which is the bond index. This also shows the PIMCO total return bond fund, which historically has been a great bond fund, but is negative for the year. We've been too concerned about rising interest rates to go there. We have also considered gold and other forms of commodities, which have given us positive returns; you see gold on the upper line. However, just a couple of weeks ago it was up 12%. It's given 7% of that back just in the last couple of weeks, so we don't want that volatility either.
Right now we are at this inflection point, so we'll see if we can hit the gas pedal and get more aggressive if the indicators improve. Otherwise, we'll focus on protecting your assets and your wealth.
If you have any other questions on this or anything else, if you want a risk profile, or if you would like a retirement projection, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our Market Minute next week!
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