Key Asset Categories vs. Cash

Most of the time that we see or produce performance comparison charts, either a stock index (such as the S&P 500) or a bond index (such the US Aggregate Bonds) is the base. However, cash might be a reasonable base to use as well. We can’t spend stocks and we can’t spend bonds. We can only spend cash, which seems like the real world’s most reasonable minimum performance benchmark.

Since few of us actually put cash in our mattress or a coffee can, and instead put it to work in short-term, very safe assets, let’s use the Barclay’s Short-Term (1-12 months) Treasuries index (proxy SHV) as our cash measure, and then compare several key asset categories to that.

The first two charts show the relative performance over 2 years weekly and YTD daily for VEU (world ex US stocks), SPY (US stocks), BND (aggregate US taxable bonds), UUP (US dollar versus basket of currencies) and DBC (global currency basket).

click images to enlarge

Weekly 2 Years

Daily YTD

US Aggregate Bonds (proxy BND or AGG) are ahead of cash for both time periods.

US stocks (proxy SPY or IVV or IWV or VTI), world stocks ex US (proxy VEU) and global commodities (proxy DBC) were all ahead of cash for a while this year, after a sickening fall in the first quarter, but all except world excluding US stocks are now once again below cash. They are not far below, but still below.

This chart shows that most major US bond types, except junk bonds, are ahead of cash.

Major US Bond Types vs. Cash

This chart shows that local currency denominated developed market sovereign debt is ahead of cash, and that dollar denominated emerging market sovereign debt took a major hit at the height of the crisis, but is strongly recovered and approaching parity with cash.

US and International Bonds vs. Cash

A health slug of bonds still makes sense to us at this time for most portfolios.

Disclosure: we own some of the named securities in some accounts.

Comments

[Fund Insider:]

So what is the conclusion from this data ?

Also, Junk behind cash ? Where did you get this data ?
My junk fund is way up.

Jul 14 08:36 AM

[Richard Shaw:]

Fund Insider: We stated our conclusion in the last sentence. The source of the data is stated on each chart.

Jul 14 10:05 AM

[Old Trader:]

I find it sort of interesting that "cash" seems to come and go, in terms of being considered an "asset class", a mistake, imo. At least until hard times approach.....then a whole slew of people "discover" (or rediscover) "religion".

Jul 14 10:30 AM

[Living4Divi...:]

Old Trader - Cash is an asset class. That's why fomulas say things like " 60% stocks, 35% bonds, 5% cash. " If cash is NOT an asset class, what is then?


On Jul 14 10:30 AM Old Trader wrote:

> I find it sort of interesting that "cash" seems to come and go, in
> terms of being considered an "asset class", a mistake, imo. At least
> until hard times approach.....then a whole slew of people "discover"
> (or rediscover) "religion".

Jul 14 01:50 PM

[Thomas MacLeod:]

Don't overlook tips(tip) emg mkt bonds (pcy) or foreign treasuries (bwx). These are also asset classes in themselves.

Jul 14 06:00 PM

[Old Trader:]

Living4,

In classic theory, yes...but often, in practice, it seems relegated to "afterthought".


On Jul 14 01:50 PM Living4Dividends wrote:

> Old Trader - Cash is an asset class. That's why fomulas say things
> like " 60% stocks, 35% bonds, 5% cash. " If cash is NOT an asset
> class, what is then?

Jul 14 06:08 PM

[Living4Divi...:]

True, Old Trader

during the great crash of 08 investors / traders were asked about their position: three answer arose as to their position

stock-bond position
all cash position
fetal position

Jul 14 09:28 PM

[Mistrofan:]

Cash is King is just a merketing tool. Cash is trash - well is getting closer. Trash is not 0 but is not far from it as being almost worthless paper issued as "Legal Tender". In Turkey and Middle East they have a saying: "Show me the Gold". And that is for a good reason...


On Jul 14 10:30 AM Old Trader wrote:

> I find it sort of interesting that "cash" seems to come and go, in
> terms of being considered an "asset class", a mistake, imo. At least
> until hard times approach.....then a whole slew of people "discover"
> (or rediscover) "religion".

Jul 14 11:10 PM

[Old Trader:]

LMAO!


On Jul 14 09:28 PM Living4Dividends wrote:

> True, Old Trader
>
> during the great crash of 08 investors / traders were asked about
> their position: three answer arose as to their position
>
> stock-bond position
> all cash position
> fetal position

Jul 14 11:11 PM

[Old Trader:]

Thomas,

Although I think you're correct, I'd consider those subsets of debt/fixed income. I actually wrote about that in a couple of articles and blogposts on portfolio construction and asset allocation.

I'd be interested in getting your feedback on those articles/posts.


On Jul 14 06:00 PM Thomas MacLeod wrote:

> Don't overlook tips(tip) emg mkt bonds (pcy) or foreign treasuries
> (bwx). These are also asset classes in themselves.

Jul 14 11:15 PM

[Richard Shaw:]

Mistrofan:

0% from cash beats negative 30% to 50% in stocks in Q4 2008. We were happy to earn nothing with our cash while watching markets melt back then. it takes a double to get back to zero after a 50% loss

Jul 14 11:26 PM