Special Reports

Investment Themes

October 3, 2005

George Friedlander / Michael Brandes

The Risk of Risk Aversion: An Overemphasis on Cash/Short-Term Maturities Carries Its Own Set of Risk

Fear of rising inflation and interest rates has caused a vast proportion of individual investors to settle for lower, more variable returns in short-term instruments. However, investors have failed to recognize the less obvious, but potentially more damaging, risk of diminished income from staying too short in a period of declining interest rates.
We believe that investors should take a hard look at the elevated cash/short-term components of their fixed-income portfolios and rethink this strategy in the context of more comprehensive, long-term objectives. Put simply, skewing a portfolio toward low-yielding cash alternatives is a risky strategy.

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