Cash in a crisis: a short guide

Cash in a crisis: a short guide

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult an independent financial adviser.

The COVID-19 pandemic took the world entirely by surprise in 2020. Across the world, many investors chose to sell their equities for cash as they watched the stock markets fall in the first quarter. Many, sadly, crystallised great losses by doing so. Yet as equities across the developed world tentatively recover as the summer ends, many people still have pressing questions about what kind of role cash should take in a portfolio during a pandemic.

Should you sell more of your equities for money in the bank, for instance, where it cannot be hit by another market crash – perhaps caused by a “second wave” of the virus as we approach the colder winter months? Or, should you hold steady? Does the role of cash investments change during a crisis or does it remain broadly the same? 

In this short guide, our financial advisers here at Cedar House offer some of our thoughts on these important questions. We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:

020 8366 4400 or


Market volatility and knee-jerk selling

It can be incredibly tempting to want to sell your stock investments during a crisis. Humans are predisposed to feel loss more acutely than rewards, which creates a strong desire to want to protect your remaining capital by moving it somewhere “safer” (i.e. into cash). Yet this is rarely a good idea, and typically only serves to solidify your “nominal” losses into “crystallised” losses. Remember, if your portfolio falls 20-30% in value due to a pandemic-induced bear market, you have not actually “lost” anything until you sell your investments. 

Maintaining discipline in the face of investments “losses”, however, is very difficult even for very experienced investors. This is where it helps to have the guidance of a trusted financial adviser who can act as a “sounding board” for your investment worries. They can also draw attention to information which you might have missed in your panic. For instance, during a crisis, it can be hard to remember that markets tend to recover and surpass their previous value – in the long term. The 2008-9 Financial Crisis, for instance, witnessed huge equity losses for investors in the short term, but those who stayed invested over the next decade likely saw their portfolios grow significantly as the world rallied.


Cash in a crisis

The main point of the above is to highlight the importance of staying true to your investment strategy during a crisis. Trying to “time the market” consistently is impossible, and most retail investors will benefit more from patiently enduring short-term pain for long-term gain. If your investment horizon is 30+ years, for instance, then this should be plenty of time for your equities to recover and outgrow their previous value. If you are looking to retire within the next few years, on the other hand, then most of your portfolio will likely have been held in more “cautious” asset types anyway (e.g. cash and gilts) to help preserve their value as you prepare to finish working.

Cash, however, does hold an important role during a crisis. It has the benefit of being shielded from stock market volatility, for instance, which helps to shield your portfolio from damage. It can be a useful diversification tool, whilst its “high-liquidity” and “ease of access” also make it helpful for short-term savings and to fill out an emergency fund. The Financial Services Compensation Scheme (FSCS), moreover, also adds an extra layer of protection for UK residents in 2020-21 by ensuring up to £85,000 of your cash is guaranteed should your bank fail during a crisis.

As a general rule, financial advisers such as ours at Cedar House usually recommend that each household saves 3-6 months’ living expenses in easy-access cash savings. This is useful during “normal times” when you might need a financial buffer as you transition to a new job. During a pandemic, however, the need for emergency savings becomes even more pressing. In October 2020, for instance, the UK’s Job Retention Scheme is set to wind down, and many people are expecting joblessness to rise. This could mean that some are forced to live off their savings for longer periods, perhaps due to the need to retrain as their sector/industry has shrunk due to the pandemic, lockdown and recession.

Another important thing to remember, however, is that cash is limited in its ability to hold value and produce long-term investment growth. Most high street banks off poor interest rates on their savings accounts, which rarely beat inflation (even in 2020). This means that putting too much of your capital into cash could result in its gradual erosion in the years ahead. Speaking with an experienced financial adviser can be helpful here, as they can suggest intelligent ways to put your cash investments to good use and recommend ways to appropriately balance your portfolio during this period of economic uncertainty and challenge.


Conclusion & invitation

If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation:

020 8366 4400 or


Posted in Investments