Growth and new projects at companies will always be measured against cash; and if a new range or product is not going to beat what the bank is offering, why bother?
The fact that cash rates are higher does not change the fact that cash sets the bar and everything else jumps over it. The higher the bar, the higher the jumps.
Secondly, we need to look at history. After all, past performance might not be a guide to the future, but it is some of the proof points we have got. We have been here before.
Let’s consider the period between 1993 and 2007, when interest rates averaged 5.35 per cent, which is similar to where they are now. Was it pointless to invest then? Absolutely not.
The FTSE 100 (with dividends reinvested) returned 8.1 per cent annualised over that period. Again, cash set the bar at 5.35 per cent and equities jumped over it.
Lumpy economic periods like this make investors think it’s best to sit tight, wait, or disinvest and move to cash. But they could not be more wrong. An investment strategy should not be short-sighted, and it absolutely should not be based on one point in time.
Emotions and headlines must not drive our investment decisions. Successful investing is all about discipline and playing the long game. It is about tolerating the volatility; not timing the markets but time in the markets.
Combining the lessons learnt from the past and some basic economic principles gives us a really simple way of reminding customers of the value in investing.
We need to work together to bring them on this journey. We must remind them that, when it comes to cash, the past is a pretty good guide and that the world will continue to jump over the bar.
Ben Kumar is head of equity strategy at 7IM
