The rise in interest rates over the last few years has taken many by surprise. Cash rates are looking attractive, especially if locked away for a year, and on top of that without any investment risk. Compare this to 18 months ago when cash was offering next to nothing.

So, for some, the temptation is to retire to the comfort of cash and a ‘reliable’ return, especially as returns over the last few years from most investment portfolios have been underwhelming.

But is this a sensible strategy? The answer, as always, is ‘it depends.’

For existing investors who require access to their money in the short term this could be a sound strategy. ‘Short’, as rule of thumb, typically means up to 2 years, although in some cases it could be a shorter or longer timeframe.

However, for longer-term investors who do not require short-term access to their money it is less likely to be the right decision.

This is because over the long run, cash will almost certainly not deliver inflation-beating returns. It has been proven that over most long-term timeframes an investment portfolio which contains a significant allocation to equities/shares has outperformed cash.

Of course, there is risk to consider but the longer an investment is held the more likely it will ride out the ups and downs of the investment markets. Furthermore, to reduce risk it is best to diversify across different assets (stuff you can invest in), geographical areas and sectors so all the eggs are not in one basket!

The problem with investing is that it can be uncertain and scary, and doesn’t always seem appealing. There is the temptation to sell out and/or wait for a better entry-point. However, although not always easy, investing should be viewed through the lens of a long-term horizon and aligned to a loosely held plan towards where the needle is pointing.

For investors with a longer-term horizon the cost of moving to cash could be costly.