Insight

3 times in history when moving to cash may have been the wrong choice

9 June, 2025

You have likely read news about the Trump administration introducing tariffs on various countries and how this has affected global stock markets. As the US government continues to adjust the policy, you may see further effects on the value of your investment portfolio.

During periods of market volatility or significant downturns, seeing your portfolio decline may tempt you into selling in a bid to avoid further losses.

However, a decline only becomes a real loss if you sell. By staying invested, you give your portfolio the opportunity to recover.

Historically, stock markets have rebounded after a crash and grown over the long term. As such, staying invested may be more sensible than moving to cash.

These three moments in history demonstrate the benefits of holding your investments.

1. The Great Depression

The Great Depression was the worst economic crisis in modern history, lasting several years. It was triggered by the Wall Street Crash in 1929, and by 1933, the Dow Jones had fallen by around 90%.

As panic spread, many investors rushed to sell their holdings to limit further losses. However, research suggests this may not have been the best approach.

A study found that investors who moved to cash after the market’s initial 25% drop faced a significantly longer recovery period than those who maintained their investments.

Those who left would not have broken even from cash returns until 1963, whereas those who stayed invested would have recouped their losses in 1945[1].

So, even though the market took just over 15 years to rebound, it was significantly quicker than the 34 years it would have taken to recover losses through interest returns on cash.

2. The 2008 global financial crisis

The 2008 financial crisis was a systemic collapse that pushed the global financial system to the brink.

On 29 September 2008, the Dow Jones fell by 777.68 points, marking its largest single-day drop at the time. By March 2009, the index had lost more than half its value compared to its October 2007 peak. The crisis triggered a global recession, mass job losses, and widespread financial instability.

As with the Great Depression, the study referenced earlier also examined the loss and recovery of the 2008 financial crisis. Again, the findings revealed that investors who moved to cash after the initial 25% decline would have taken significantly longer to recover than those who stayed invested.

Indeed, those who exited the market during that time have yet to fully recover their losses today. Meanwhile, investors who remained in the market saw their portfolios rebound to pre-crisis levels by around 2013.

3. The Covid-19 pandemic

During the early days of the Covid-19 pandemic, uncertainty about the future of the market and the expectation of losses led many investors to pull out, resulting in a steep market decline.

The S&P 500 dropped roughly 34% between 19 February and 23 March 2020. However, despite the dramatic downturn, the markets rebounded swiftly, with the S&P 500 reaching a record high by the end of the year.

So, exiting the market during the initial downturn of the pandemic would have meant missing out on the rapid recovery that followed.

Markets trend toward growth in the long term and typically recover after significant declines

While moving to cash may feel like a safer choice during market downturns, it often comes at a cost, as inflation gradually erodes the real value of cash.

Moreover, unlike investments, cash often lacks the potential for long-term growth, meaning you risk missing out on future rebounds and gains if you exit the market.

While market downturns often coincide with major global events, history shows that these declines are typically short-lived and are followed by significant recoveries as investor confidence returns.

Get in touch

Our investment managers can assist you in setting long-term goals and improving your portfolio’s diversification, helping to ensure you remain resilient amid downturns and market fluctuations.

To speak to a member of our experienced team, get in touch.

Please email info@ipscap.com for more information. If you are already working with us, contact your relationship manager.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

[1] 03.03.2025 The data which can help you keep a cool investing head in a crisis Schroders

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