Thinking about cash as part of your portfolio ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ Cash as part of your portfolio Hi there, I’m Ben Reeves, Wealthsimple’s Chief Investment Officer, and I regularly send our clients my perspective on topics that may impact you as an investor. In recent months, deposits into cash-equivalent products have grown significantly. So today I’m going to review how to think about cash as part of your financial plan and, if you’ve been holding onto more of it lately, how to think about getting back into the markets. Cash as part of your portfolio Cash is generally risk-free, but it yields little in return and underperforms riskier assets. That’s why investors generally aim to keep enough – but no more than enough – of their assets in cash. So what is enough? It’s what you need to cover your day-to-day expenses — your groceries, mortgage payments, child-care costs and such. Plus, you’ll also want to be able to cover unexpected expenses like a home repair, or to cushion a job loss without dipping into an account that carries a tax penalty for withdrawal. Over and above those needs, cash is a drag on long-term performance, and generally speaking, is better off being invested. Transitioning out of cash If you have more than enough cash for the needs outlined above – a good problem to have – you may want to figure out when and how to put it to work in the markets. When to invest? Timing the market is very hard and most attempts fail, but there are a couple of trends to keep in mind. One is that as the interest rate hiking cycle nears its end (as market pricing suggests it has), cash starts to become less attractive compared to risky assets like stocks and bonds. The second is that historically, investors have gotten the best returns before an economic recovery starts. If you try to wait until a recovery happens, chances are you'll have already missed it. We’ll only know for certain in hindsight, but we may be experiencing this effect now: world stocks are up more than 10% since October of last year.* Lump sum or dollar cost averaging? There are two approaches to investing a sum of money: do it all at once, or spread it out at regular intervals — a process called dollar cost averaging. Investing experts often advise investing the cash you have sitting on the sidelines all at once; there’s a saying, “time in markets beats timing the markets.” However, the most important thing is that you have a plan you can stick with: if the idea of a big investment makes you nervous, gradual deposits are a great option too. A Wealthsimple advisor can help you figure out the right plan. Contact us What to invest in? Whether you invest on your own or in one of our portfolios, history shows that the best bet for outperforming cash in the long term is a well-diversified portfolio of stocks and bonds. Naturally, I’m biased toward the Managed Investing portfolios my team designs; you can read about our investment philosophy here if you’re interested. Open a managed account As always, if you have any questions about your investments or financial plan, we’re here. Please get in touch. All the best, Ben Reeves Chief Investment Officer Wealthsimple, 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Privacy Policy Unsubscribe Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. *Source: Bloomberg World Large and Mid Cap Index Total Returns (CAD) from 9/30/22 to 5/5/23. Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. Self-directed investing is offered by Wealthsimple Investments Inc. (WSII). WSII is a member of the Canadian Investment Regulatory Organization (CIRO). Customer accounts held at WSII are protected by Canadian Investor Protection Fund (CIPF) within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF. © 2024 Wealthsimple Technologies Inc.