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What Does It Mean to “Move to Cash”?

what does it mean to move to cash_

Many media outlets have been promoting a recessionary period for the United States, and one of the benchmark stock ETFs, the S&P 500, has currently posted a decline of over 10% for this year.

With all of this negative press circulating across the internet, many people have been changing their investment strategy and claiming that it is time to “move to cash”. So, what does it mean to move to cash? What are the implications taken when moving to cash, and should we as investors consider moving to cash in this current market?

What it means to move to cash

Moving to cash is exactly like it sounds like: people liquidate their assets in order to carry cash around, usually because they believe that their cash will have more purchasing power in the future. The idea is simple: if someone believes that the value of their stock (or cryptocurrency, or home) is going to decrease in value, then they can sell their assets now and then purchase them back later at a better price, right?

People like to move to cash when they believe that there is a better deal coming down the line. They spend and invest less because they believe they might get a better bang for their buck in the future. There is a decades-old saying that “cash is king” – moving to cash will increase one’s cash reserves and strengthen that saying.

Should we as investors consider to move to cash in this current market?

This is an incredibly tough question to answer, and of course the best answer is that nobody knows. Every investor is different, and there is more than one path that can make an investor successful. Some people make their riches through concentrated bets, others make their riches through diversified assets. Others start building wealth through forex or crypto trading. The path to a successful investor is not linear. Currently, there is conflicting information that can make people consider whether or not to move to cash. 

One reason to move to cash that many people argue is that the stock market has been declining during the past year.  Another reason could be that the recent CPI index numbers that came out on August 10th show that inflation may have peaked in the month of June. This event shows that perhaps the peak of inflation has already passed, and therefore perhaps cash will become more valuable over the coming months or years. That being said, we are still experiencing inflation, meaning that cash is still losing value in terms of purchasing power every year.

The fact that we are still experiencing inflation is one of the main arguments that one could give why moving to cash might not be the best idea right now.

The CPI index numbers may be decreasing between June and July, however the inflation numbers are still a few times higher than the Fed’s benchmark rate of 2% per year. Another argument is that moving to cash means that one cannot take advantage of the passive income or price fluctuations opportunities that certain assets generate. 

Conclusion

Many veteran investors will promote the benefits of having a diversified portfolio. It  can help protect one’s portfolio from volatility; if one asset goes down in value, perhaps another asset increases in value, maintaining a certain balance in one’s portfolio.

That being said, having cash on hand is generally a part of a diversified portfolio, so that one can take advantage of market opportunities. Therefore, in certain circumstances and market conditions moving to cash can be considered a smart move for a diversified portfolio, if one thinks that more market opportunities are coming.

Many investors and large funds tend to have anywhere from 4% to 28% of their portfolio in cash reserves, depending on market conditions. Therefore, investors may want to move to cash during tough economic times. When everything else is volatile, cash can be considered a safe haven. So, are you considering moving some of your assets to cash?

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