How Often Does Cash Reign as King?

Every time something unexpected occurs in the markets people immediately flip out like something is broken. The markets are constantly surprising in a number of ways, but most of the things that seem completely out of the ordinary have happened in some form or another in the past.

This year the big worry is that fact that both stocks and bonds could finish the year in negative territory. In U.S. markets, bonds are slightly positive on the year while stocks are down anywhere from 5-10%, depending on the market cap or investment style. There’s a real possibility that cash could outperform both stocks and bonds this year.

I wanted to see how often cash has outperformed both stocks and bonds in the same calendar year. Here are the results since 1928:


It’s actually happened twelve times over the past ninety years or so, a little more than once every decade. If markets are cyclical and mean revert eventually you could actually say that we’re overdue for this type of performance since it hasn’t happened since OJ decided to go for a long drive in his white Bronco.

Many of those years involved much higher interest rates, thus higher yields on both cash and bonds, especially in the 1970s and early-1980s. It’s a little different this time around because interest rates are so low. The true outliers are when both stocks and bonds are negative during the same year, something that’s only happened on three separate occasions during this time frame. With low rates it’s certainly a possibility this year.

Make of it this type of market environment what you will. Some seem to think it means the end of the financial markets as we know them. I tend to think this is just what happens after multiple years of solid gains. It’s just one year so I don’t think there’s a whole lot you can glean from this information other than the fact that you have to prepare yourself for the times when risk assets are risky.

Further Reading:
When Correlations Go To One

Subscribe to receive email updates and my quarterly newsletter by clicking here.

Follow me on Twitter: @awealthofcs

My new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, is out now.

What's been said:

Discussions found on the web
  1. Phocion commented on Oct 01

    How did cash not outperform stocks in 2008?

    • Ben commented on Oct 01

      This is just when cash outperformed both stocks and bonds in the same year. Bonds had a really good year in 08 and outperformed cash.

  2. Joe__T commented on Oct 01

    Just a nit: should be “… a little more than once every decade.

    I perk up when I see these tables, as you’re always showing good insights from data, like the time you showed that in times of high inflation, the average investor isn’t able to do anything to combat inflation, i.e., we don’t earn more in times of high inflation, but counterintuitively earn more in times of low inflation.

    • Ben commented on Oct 05

      Good catch. Thanks.

  3. John commented on Oct 02

    That may not be the right way to look at it. When markets are overvalued it is better to have cash to buy assets at a discount like stocks or property in 2008.

    So it is not out performance or return on investment but rather ability to use it effectively

  4. Bob Carlson » Cash Is King commented on Oct 02

    […] the only thing to invest in is cash. They want to see most assets have returns higher than cash. This post has a brief discussion and shows how few times cash is the top performer for a calendar year. Drop […]

  5. RobotandFrank commented on Oct 04

    How can bonds not outperform Cash? If the return on cash is the interest paid by a bank…surely the interest/coupon of bonds are higher?

    Also what was the telock book on your reading list?

    • Ben commented on Oct 04

      When rates rise very quickly bonds get hit as prices fall when yields rise, but cash has basically 0 duration so it tends to outperform over certain periods of rising rates.

      Superforecasting by tetlock

  6. Ravi Dawar commented on Oct 06

    Ben, just curious – what did you use to calculate the return on 10 year T-Bond for the past years?