Jamie Battmer, chief investment officer, Creative Planning: As far as an asset allocation strategy, there is just no historical empirical data that would support maintaining a large long-term cash position. For any client who has a longer term time horizon, cash has underperformed equity 100% of the time over any trailing 20-year period. Even those people who are on the brink of retirement have a 20-year time horizon ahead of them. It’s nice that cash isn’t the dead-end street it was in a zero-interest rate environment. But relative to the other investment opportunities out there, cash should still be a minimal part of the portfolio and it should only be designed to fund short-term needs or upcoming withdrawal needs.
In terms of the fixed-income portfolio, it’s really interesting that no one’s talking about essentially the four-year bear market we’re now in for bonds. Imagine if we were in a four-year bear market for equities, how the world would be on fire. A lot of people trying to attach themselves to that trade this year [buying bonds in anticipation of rate cuts, which would boost their value] have been punished for it. Extending the duration on a fixed-income profile adds a lot of risk to the portfolio that we think is better suited to the equity side, where you will be rewarded better over the long run. Even if the inverted yield curve straightens out, we don’t think the opportunity is worth the risk.
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