Newsmax Finance Insider Mohamed El-Erian
warns that holding a good chunk of cash in your investment portfolio is a shrew strategy considering the global current volatility.
"A good cushion of cash and cash equivalents in portfolios makes sense for both strategic and tactical reasons," he writes for the FT.com.
El-Erian, chief economic adviser to Allianz and chairman of President Barack Obama’s Global Development Council, warns that it is nearly impossible to predict future market directions because of the political, economic, social, and financial uncertainty in the world.
“Recent signals from the European Central Bank and the Federal Reserve have reignited talk of divergent monetary policies among the world’s two most influential central banks,” he wrote.
“The short-term implications for investors include a stronger dollar, greater equity market volatility and a wider trading range for key interest rate differentials. The longer-term consequences are up for grabs. Both suggest investors should revisit conventional wisdom that dismisses cash as a ‘wasting asset’ in their portfolios,” he wrote.
"Over the longer term, a strategic cash cushion provides investors with an important element of resilience at a time of genuine uncertainty," he wrote.
“As we were reminded on several occasions this year, this is a market in which fundamentally solid stocks and bonds can easily get unduly contaminated by weaknesses elsewhere, especially given the high likelihood of patchy liquidity.”
To be sure, El-Erian isn’t the only prominent financial voice to sound the alarm about global volatility.
Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street, warns that numerous global hot spots could sink stocks.
"Financial markets around the world have been preoccupied with both economic and monetary policy uncertainties. But in the last few days, it has become apparent that the real risks of an unexpected market event can be found in military theaters around the world," he wrote for CNBC.com.
"The threat of an accidental encounter between either U.S or Russian air forces in the Middle East, or U.S. and Chinese naval forces in the South China Sea, are growing greater every day," he wrote.
"And, it's not the only global hot spot in play. U.S. warships are now powering through the South China Sea, testing China's willingness to allow unfettered passage for any ships sailing in recognized shipping lanes around the world," he wrote.
(Newsmax wire services contributed to this report).
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