Is it common for people to hold cash in investmentment accounts when the market is going down?

isayhello

To clarify, what I mean is when the market looks to be heading into a recession or there are bad signs, is it a common strategy for people to remove their money from investments and just hold them as cash to stop them dropping in value in case they need access to the cash sooner or they just want the flexibility to remove it without feeling locked in till the market recovers? Would this be wiser for people nearing retirement age?

I'm newish to investing and have seen people talking about how their portfolios have lost value but they expected this to happen, so why not just skip out and reinvest later?

HappyHarry

If you know when the markets are going to go down, then surrendering your investments is a good idea. Then, when you know the markets are going to rise, repurchase the investments.  This is a winning strategy for all those that know when markets are going to rise and when they are going to fall.

The only issue is that there is nobody that fits into this category.

We can all guess when markets are going to rise and fall, and some people can publish news items and reports saying what their guess is which other people may read, but at the end of the day, nobody knows. 

Because of this, and the fact that markets tend to rise over the long-term, most sensible investors acknowledge there will be rises and falls, and leave their funds invested throughout.

dunstonh

To clarify, what I mean is when the market looks to be heading into a recession or there are bad signs, is it a common strategy for people to remove their money from investments and just hold them as cash to stop them dropping in value in case they need access to the cash sooner or they just want the flexibility to remove it without feeling locked in till the market recovers?

You never know when the markets are going to fall.   So, holding cash trying to time the market is usually futile and pointless.  

However, for money you need in the short term say 36 months or thereabouts, then it is sensible to have that in cash.   So, from a decumulation point of view, it can make sense.

For example, if you are doing income drawdown, then having 36 months worth of withdrawals in cash in your wrapper is sensible as it avoids the need to sell units when markets may be lower.   You can then refloat the cash when markets are in a better state.  That would work 90% of the time but there is always going to be a period that goes on longer than 36 months (such as early millennium when there were three negative years in a row and several years to recover).

I'm newish to investing and have seen people talking about how their portfolios have lost value but they expected this to happen, so why not just skip out and reinvest later?

You should always have an expectation that your portfolio is going to go down.      They are always coming at some point.  You just don't know when.     So, when would you exit?  When would you go back in?        You wouldn't get it right.  You wouldn't pick the top of the market and you couldn't pick the bottom.  You are better off punching through and coming out the other side.

MX5huggy

Don’t confuse “markets” with the economy and specifically the UK chances of a rescission, that is already priced into the markets. 

When people say they expected it to happen they mean at some unknown point it was going to go down, they also don’t know when this will recover and because on average markets go up you need to be in the market all the time. Today is a good day for me my 18 months of regular investment in Vanguard Global All Cap is back in the green showing £27 up on the £10k I’ve put in.

eskbanker

MX5huggy said:

Don’t confuse “markets” with the economy and specifically the UK chances of a rescission, that is already priced into the markets. 

Don't confuse 'rescission' with 'recession'!

rescission

noun

FORMAL

1. the revocation, cancellation, or repeal of a law, order, or agreement.

   "the plaintiff agreed to the rescission of the agreement"

Albermarle

Another scenario, is where cash is added to a pension or ISA, to beat deadlines , like the max £20K into an ISA each tax year.
If there is a lot of bad news around many will hesitate to invest it straight away and/or they may want to do some research on maybe different investments than they already have.

Don’t confuse “markets” with the economy and specifically the UK chances of a rescission, that is already priced into the markets.

As above, the markets look ahead and if they see any signs that a recession might be over in 12 or even 24 months time,  then the market can start going up even as the economy is in recession. On the other side if any recession is worse or longer than expected, it could have a negative impact on share prices.

In fact markets have been moving up steadily in July so far.

Nebulous2

I don't know if it is common - but I am certainly doing it. I opened a SIPP almost a year ago, have paid in over £12k so far, and hadn't invested any of it until mid-June, when I invested £4k. That was fortunate, rather than knowledgeable, but it is up around 6% and I find myself idly wondering why I didn't put in more! 

We tend to ascribe positives to skill and negatives to luck. You see that often with houses.

 "I knew this area would become more popular, people didn't believe me when I bought here and I've done really well.... " 

OR

" I was really unlucky. I bought just before the recession and have been in negative equity for years now....." 

[Deleted User]

Nebulous2 said:

I don't know if it is common - but I am certainly doing it. I opened a SIPP almost a year ago, have paid in over £12k so far, and hadn't invested any of it until mid-June, when I invested £4k. That was fortunate, rather than knowledgeable, but it is up around 6% and I find myself idly wondering why I didn't put in more! 

We tend to ascribe positives to skill and negatives to luck. You see that often with houses.

 "I knew this area would become more popular, people didn't believe me when I bought here and I've done really well.... " 

OR

" I was really unlucky. I bought just before the recession and have been in negative equity for years now....." 

I guess that's because nobody wants to admit that they made a wrong conscious decision.  It feels far better to blame someone/something else (in this case LUCK), than admit that you are wrong.  Conversely, we all like to take credit when things go in our favour even when it is down to luck.  This is called human nature!!!

400ixl

I doubt many do it at all as it is dead money being eroded by what you would probably find in high inflation rates.

If it is not in a SIPP or ISA then it would make far more sense to move it to a savings account to at least get some return or even premium bonds.

If it is in a wrapper then finding some sort of investment that is more recession proof such as invested in protected bonds or similar. Some of these investments will no doubt have a cash element to them, but they will be cash which is attracting at least some interest.

Albermarle

[Deleted User] said:

Nebulous2 said:

I don't know if it is common - but I am certainly doing it. I opened a SIPP almost a year ago, have paid in over £12k so far, and hadn't invested any of it until mid-June, when I invested £4k. That was fortunate, rather than knowledgeable, but it is up around 6% and I find myself idly wondering why I didn't put in more! 

We tend to ascribe positives to skill and negatives to luck. You see that often with houses.

 "I knew this area would become more popular, people didn't believe me when I bought here and I've done really well.... " 

OR

" I was really unlucky. I bought just before the recession and have been in negative equity for years now....." 

I guess that's because nobody wants to admit that they made a wrong conscious decision.  It feels far better to blame someone/something else (in this case LUCK), than admit that you are wrong.  Conversely, we all like to take credit when things go in our favour even when it is down to luck.  This is called human nature!!!

Or as we used to say at work.

When something went well then 'I got it right', but if the opposite then 'We got it wrong'

isayhello

Albermarle said:

In fact markets have been moving up steadily in July so far.

How would you classify this? is it by looking at the ftse index which shows that? or some other global indices?