Avoiding the opportunity cost of thumb sucking

Julian Beaumont, Investment Director at BAEP explains that a number of investors are concerned at the market’s current trading levels; some are seeing ominous clouds and are planning for the rainy day they see ahead. Many hold onto quite high levels of cash, believing the market is due to turn down and that better opportunities will then appear. The problem is that you miss out on the superior returns generally available from the share market. The market, as represented by the S&P/ASX300 Accumulation Index, has returned 9.5% annually over the last five years, whilst cash has returned approximately 3.5% over the same time period. The difference, which totals up to almost 40% over the full five years, represents the opportunity cost of thumb sucking, and the amount by which one’s wealth would have otherwise grown. We build our portfolios one stock at a time. Holding cash is just an outcome of being unable to identify decent opportunities, and right now, we hold minimal cash levels across the portfolios we manage. Click on Longform to see one of our new ideas.