My comments over the last couple of months that “cash is good”— which was opposite to my comment made in early 2020 that “cash is trash” — got a lot of attention prompting some people to want to know why I changed my mind.
To be clear, what I tried to convey both times is how attractive cash is based on the interest rates offered at those times. The rates were “trashy” (less than 1 percent) back in 2020 and “pretty good” (around 5 1/2 percent) recently.
Sometimes cash is good and sometimes cash is bad. This is based on a number of measures I use and want to pass along so I can help you “fish” rather than give you a “fish” (i.e., a conclusion without the reasoning that led to it). I will share a simple, imprecise but pretty good way to assess whether cash and bonds are attractive or unattractive. While my actual process is a bit more complex than what I’m going to describe, this simple version should help explain my thinking, though I worry that it might still be a bit too complex for some. I also want to make clear that this post is about comparing the relative attractiveness of asset classes, not investing to produce alpha (which is a much different topic). Anyway, here goes.
https://www.linkedin.com/pulse/thinking-behind-why-cash-now-good-trash-ray-dalio/