Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

‘I’m 60 years old and I’ve got half my money in cash.’ It sounds like the kind of guilty secret you utter only in a support group where you know everyone else has a similarly shameful admission to make. After all, almost every investment commentator on earth tells us endlessly that it’s time in the market that matters and long-term investors are better off remaining invested. I’ve even written it myself. So why have I done the opposite?

The immediate spur for my decision to sell the stock market tracker funds in my Fidelity pension and put the money in the Fidelity Cash Fund was the fear that things could be about to get out of hand in the Middle East. Anything like a repeat of the Opec oil embargo of the 1970s could crash the stock market.

Again I can almost hear the reaction of investors, private and professional, to these fears. As one of my colleagues put it, ‘there’s never a time when there isn’t something to worry about’. If you sell whenever there’s something scary happening somewhere in the world, you’ll always be out of the market and you’ll miss out on the returns that only shares can offer. And nine times out of 10 the things you were worried about come to nothing.

I know all of this. Yet I still think my decision was rational. Here’s why.

It all comes down to my age. If I were even 10 years younger, I would tell myself that a decade hence the market should have recovered from even the biggest crash. But now, when I may need the money in just a couple of years, the balance of risk and reward is different.

Put simply, if I did want to retire in two years’ time and the market did halve tomorrow, I might have to change my plans and carry on working. I don’t want outside events to have the power to make me change my plans so radically or to take away the flexibility that my pension savings currently give me. If maintaining my freedom of choice requires me to switch to risk-free assets and accept the possibility, the likelihood even, of lower returns, it’s a price I’m willing to pay.

What is that price? At first glance the return on cash is pretty tempting: plenty of cash funds are available that yield about 5%; the Fidelity Cash Fund I happen to have yields a fraction less than that figure currently. As I have the ‘accumulation’ units, that annual return will compound. However, once we allow for the current inflation rate of 3.2%, my real return is just 1.8% a year. By comparison, the real return on British stocks is 7.1% in an average year, according to this year’s Global Investment Returns Yearbook from UBS, the bank. The graphic and the table below, both taken from the UBS Yearbook, give us an idea of the kind of returns that shares can produce –­ and of the volatility of those returns.

UK equity real returns (%), 1900-2023

UK equity real returns (%), 1900-2023

Copyright © 2024 Elroy Dimson, Paul Marsh and Mike Staunton. Past performance is not a reliable indicator of future returns.

If I were sure to receive that average return, of course I would keep my money in the stock market. Unfortunately, that’s not how markets behave. Crashes happen and we should bear that possibility in mind when we think about our investment strategy against the backdrop of our needs, circumstances, tolerance for risk and investment time horizon.

The best of times, the worst of times for shares, 1900-2023

The four best periods
Period Economic backdrop Cumulative real gain on UK shares
1919-1928 Post-WWI recovery 234%
1949-1959 Post-WWII recovery 214%
1980-1989 Expansionary 1980s 357%
1990-1999 1990s/tech boom 198%
The six worst periods
Period Economic backdrop Cumulative real loss on UK shares
1914–1918 World War I 36%
1929–1931 Wall Street Crash 31%
1939–1948 World War II 34%
1973–1974 Oil shock/recession 70%
2000–2002 Internet 'bust' 38%
2008 Global Financial Crisis 33%

Copyright © 2024 Elroy Dimson, Paul Marsh and Mike Staunton. Past performance is not a reliable indicator of future returns.

To be clear, it’s not that I’m convinced the market is going to crash. I don’t even think it’s the most likely outcome; in fact I think it’s pretty unlikely. But the possibility, if small, is real enough for me not to want to take the risk.

Of course, things may change in future. The world could begin to feel a safer place; stock market valuations could start to look tempting. I have no idea if or when such things might happen but I do always have the option to reinvest some or all of the money I have moved into cash; it would be a simple matter of switching out of the cash fund and back into the trackers I had before, or indeed into any other investment that took my fancy.

And it’s not as if I’ve quit the market entirely. I’ve still got plenty of money invested, largely in income-producing investment trusts. All I’ve done is dial down the risk in my portfolio. As the time approaches to start taking money out of my pension, I don’t think that’s such a radical idea.

Am I being too risk-averse? Or am I still too exposed to the market? Tell me what you think on X: @RichardEvans10

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon.  An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity's money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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