Holding cash can be riskier than equity investments

INVESTORS are increasingly concerned about market risks because of factors such as Singapore’s elevated core inflation, propelled by aftershocks of Covid-19 and the geopolitical conflict between Russia and Ukraine. According to an Endowus report, inflation is currently the greatest financial concern among Singaporeans, and up to 69 per cent feel growing pressure to save more.

In this climate of high inflation, strategies to maximise money growth are no longer a luxury but a necessity. As a result, many investors are reluctant to invest in the market, and some even sell their stocks and bonds to minimise losses. In response, banks offer higher deposit rates to appeal to investors who choose to hold money in the form of term deposits.

Cash is king, or is it?

Holding cash may seem like a safer option during market volatility, especially with the emotional comfort of knowing how much one has at any given time. However, this is not ideal as it remains vulnerable to inflation, especially in the current macroeconomic environment. Inflation erodes the purchasing power of cash and the value diminishes, meaning the goods and services one can buy in the future will be less than what can be bought today.