Should I move my money into cash to avoid stock market volatility?

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How much money should I keep as a proportion of my investments, beyond an emergency fund? Inflation would suggest the least, but I know plenty of people who shifted a large portion of their assets into cash as stocks fell, both to cushion losses and be ready to buy when things pick up. What is the best cash strategy in a high inflation environment?

Paul Surguy, Managing Director and Head of Investment Management at Kingswood, recalls that former US President Ronald Reagan once said, “Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman.” Perhaps inflation is best described as a silent assassin: for most economies it is still around, gradually eroding the purchasing power of money.

Paul Surguy, Managing Director of Kingswood

With prices rising to levels not seen since the 1970s, many have started to wonder what steps they can take to protect their assets. To appreciate the impact this can have on cash holdings, consider £1,000 in a bank today. At the current (and assumed constant) level of inflation, this will be worth £917.43 a year from now. In the UK, supply bottlenecks and the price of oil intensified the rise. As these subside, it is hoped that inflation will naturally start to decline.

Cash is held as ultimate protection. Historically, for those whose memories go back to the 1990s and early 2000s, one can expect to get some interest on cash in the bank. However, even with rising interest rates around the world, any interest received is both miniscule and irrelevant to inflation.

So where can people go to protect their assets against inflation? Traditionally, real estate and equities would be the first port of call and should, within a certain risk tolerance, remain the best place. Inflation-protected bonds are a lower-risk method of protecting investments.

However, all of these are more risky than short-term cash, as their value will fluctuate. This is why investors must ensure that they have a diversified portfolio suited to their risk tolerance. There is also a wider range of alternatives, such as gold (the traditional inflation hedge) and uncorrelated assets such as low-risk hedge fund-type investments.

That said, cash remains the ultimate safety net for investors. Three to six months of income still seems like a reasonable level of cash to maintain to cover any short-term emergencies. This can always be re-evaluated if inflation goes down or the value of risky assets goes up. We should also start to see a slight increase in interest paid by banks as central banks have clearly signaled that the direction of interest rates is up.

The UK is currently expected to have an interest rate of just over 2% by the end of the year. In the United States, the number is closer to 3%. Granted, that’s higher than we were used to, although less than the story suggests, that’s “normal.”


How can I settle a dispute concerning a holiday home?

My mother recently passed away and left her estate, including a holiday home on the Sussex coast, to my brother and me. My brother, who is the executor, doesn’t seem to be in a rush to sell the vacation home, even though that’s always been the deal. Can I force a sale?

Kai Jones, Senior Partner in RWK Goodman’s Private Clients Team, says it’s not easy to deal with the loss of your mother and the fact that your brother seems to be reversing the sale of the vacation home.

Portrait of Kai Jones, Senior Partner at RWK Goodman

Kai Jones, Senior Partner at RWK Goodman

I assume that your brother is the sole executor and that your mother’s estate should be divided equally between the two of you. As executor, your brother has a duty to collect estate assets, settle outstanding debts and your mother’s administrative expenses, such as legal fees. Once the assets of the estate have been collected and the liabilities settled, the executor must distribute the balance to the beneficiaries.

In addition, your brother should be aware that as an executor he must avoid any potential conflict of interest between his duties and responsibilities as executor and his personal wishes. As the beneficiary, you have the right to demand that the estate be administered properly and in accordance with the will.

Therefore, if your brother has settled the debts of the estate, he should distribute your share of the estate to you. The distribution would either be done by liquidating the assets of the estate and distributing the money equally, or by transferring the assets to your common names.

From what you have said, the will does not make specific provisions for the vacation home and its sale was an agreement between you. Although you cannot technically force your brother to sell the holiday home, you can suggest that if he wishes to keep the holiday home for himself as a beneficiary, he can reimburse you for your share of the vacation home out of their own funds or out of their share of the estate.

I would advise you and your brother to seek to resolve this issue amicably and mediation can help. Legal action should only be considered as a last resort.

If you can’t settle things out of court and think your brother is acting improperly as executor, you can ask the court for directions on selling the property. You can also request the removal of your brother as executor if you are concerned that he will have a negative effect on the administration.

If you have made a request, the court will review how the administration is being conducted and act in the best interest of the estate. He will review the terms of the will and ignore any agreements you and your brother may have made. I hope you and your brother are able to resolve the issue without legal involvement to avoid animosity.

The reviews in this column are intended for general informational purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from any reliance placed on the answers, including any losses, and exclude all liability to the fullest extent.

Our next question

My wife owns an apartment that she bought with a mortgage before we met. She then went back to higher education and the apartment is rented to support her financially during her studies. If we buy a house to live in (of which we will be co-owners), we can remortgage the apartment as a buy-to-let. However, due to our current income disparity, the bank is insisting on a joint mortgage on the apartment, which they say will require my name to be added to the deed and a capital transfer. If this happens, can my wife continue to disclose only rental income on her tax return, or would UK tax and customs require me to disclose some of it? Are there other tax considerations?

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