Cash’s long-term underperformance compared to other asset classes is a structural phenomenon. Stocks (S&P 500) have beaten cash (Treasury Bills) in 86% and 100% of all 10- and 20-year holding periods, respectively, and by more than 200 times overall since 1926.
Yet, investors may be reluctant to put cash to work in today's environment of tariff and US policy uncertainty and in the wake of a sharp rebound in US equity markets. While the S&P 500 Index stood close to bear market territory in the wake of President Trump's "Liberation Day" tariff announcements, tariff pauses and trade deals, limited signs so far of tariffs passing through into inflation, and solid second-quarter corporate earnings have led the benchmark US equity index to rebound to fresh highs, surpassing the 6,300 mark, while global equities (MSCI AC World) have rallied around 25%. Implied US equity volatility, as measured by the VIX Index, has fallen from highs of 51 to around 17, below the long-run average of 20.
On balance, we believe investors should seek to put cash to work systematically for potential long-term gains, rather than try to time the market to maximize near-term profits. History shows that forward returns are typically strong after periods of market turbulence. When the VIX exceeds 30, the S&P 500’s average 12-month forward return has been over 15%. Balanced portfolios (60/40) have delivered positive returns in 88% of rolling five-year periods in the US, and since 2003, in 85% and 87% of periods for Europe and Switzerland, respectively.
A robust cash management framework can help investors avoid myopic focus on day-to-day needs, segmenting liquidity into everyday cash, core liquidity, and investment cash. Core liquidity—covering known expenses or emergencies over a 1-3-year horizon—should balance flexibility and yield. One of the most effective tools for this segment is the bond ladder.
A bond ladder involves purchasing a series of bonds with staggered maturities, so that a portion of the portfolio matures at regular intervals (e.g., every six months or annually). This approach provides predictable cash flows, reduces reinvestment risk, and allows investors to capture higher yields available on longer-dated bonds while maintaining access to liquidity as bonds mature.
Investors can efficiently construct bond ladders using dedicated investment tools designed to mature in specific years, with a cash flow profile of individual bonds that matches the investor’s needs but a portfolio construction that may have better diversification and liquidity than if a single investor buys their own selection of bonds.
To further enhance core liquidity, investors can complement bond ladders with exposure to short-duration bond vehicles. Some focus on global short-term corporate bonds, attempting to capture a yield premium over cash with limited interest rate risk. Others seek a specific focus on credit in certain currencies: one example would be tools that provide exposure to high-quality Swiss franc-denominated credits (including some judicious exposure to senior unsecured bonds, covered bonds, and subordinated debt). This approach balances yield and capital preservation for Swiss-based investors in a period where Swiss government and investment grade bond yields are generally very low.
By combining bond ladders with complementary funds, investors can potentially achieve a diversified, flexible, and yield-enhanced core liquidity allocation. This approach not only helps protect against the risk of negative real returns. It also aims to provide liquid funds when needs arise, potentially supporting both short-term obligations and long-term financial goals.
Investment cash is the segment of liquidity earmarked for needs up to five years out, where the focus shifts from immediate access to maximizing returns while accepting some price fluctuation and lower liquidity. This allocation is best built using medium-term government or investment grade bonds, as well as diversified multi-sector bond investment approaches, in our view.
We also recommend phasing into diversified portfolios over time by adhering to a disciplined, phased approach that puts cash into portfolio building blocks of stocks, bonds, commodities, and alternative assets that match an investor's objectives and reflect their constraints. This may help manage the risk of poor timing, reduce the influence of emotion, and provide more opportunities to benefit from market dips and rebounds, in our view. While it is not possible to predict how long the current period of uncertainty will last, there are proven strategies to manage it. By phasing in, maintaining diversification, and sticking to a long-term plan, investors can position portfolios to benefit from future market recovery and growth.
For investors who have already built robust core portfolios, switching cash into high-quality fixed income portfolios can still be useful. Doing so can lock in yields, provide robust income, and help dampen portfolio volatility. While we cannot rule out periods of market volatility where bond yields climb on fresh US policy announcements, the steepening of many sovereign yield curves generally means that bonds can beat cash over a tactical investment horizon.
Annuities could also be considered, as they can help investors manage the risks of a market decline or overspending that impairs retirement assets (sequence of returns risk) and of investors outliving their wealth (longevity risk).
Allocating a portion of a portfolio to annuities can allow investors to lock in higher yields and secure a reliable stream of income that can last for the rest of their lives. Similar to a bond, an annuity becomes more valuable if interest rates fall in the future (because it would be more expensive to replace this stream of income when interest rates are lower). By the same token, existing annuities may become less valuable if interest rates rise. Unlike a bond (or any other investment), a lifetime stream of annuity income also appreciates in value if an investor's life expectancy increases due to good health and medical advances that improve longevity.
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