Why Hold Cash When You Could Hold Dividends?

$11 trillion is sitting in cash in the US right now.¹ Because of the short-term stability of cash, it makes sense that in a highly volatile year more people want a safer place to park their savings. In response to the tariff turmoil in April, for example, 401(k) investors scrambled to move their money around. More than half of outflows left US large-cap equities. 17% of inflows went into money markets while more than a quarter went into bonds and over half went into stable value funds.²

For the past few years, cash has been a tempting investment option with yields relatively high in the 4-5% range. Cash certainly has its benefits. Money markets are great for short-term savings goals and emergency funds because they are far less volatile than stocks in the short term and allow investors to avoid losing money in a downturn. But holding too much cash presents the risk of losing money in a different way and not meeting one’s financial goals.

For investors who are in it for the long haul, cash has historically had lower returns than stocks and bonds.³ With cash yields tied to federal interest rates, the return that cash holders have expected began to drop when the Federal Reserve started lowering interest rates last fall.³ At the same time, inflation has remained relatively high. Cash drag is the negative impact of holding cash compared to the potential performance of that cash if invested in the market, considering inflation.⁴

Even for the most risk-averse investors, here’s an hypothetical scenario that compared cash to the worst market investment timing, defined as investing in the market when it was at its peak value for the year: When a hypothetical $5,000 was invested annually from 1980 to 2023 in cash versus in the market during the “worst timing,” the most poorly-timed stock market investment still outperformed cash 12:1.³

But we can’t talk about stock market returns without talking about dividends. From 1930 to 2023, dividends made up 40% of the S&P 500’s total annualized return.⁶ Compared to cash, dividends can be great for regular income, retirement planning, and long-term growth. Compared to non-dividend paying or hyper-growth stocks, dividend-paying stocks hold up better in volatile markets.⁵ Historically, dividend investing aims to help lower volatility and protect against losses during market downturns, especially when the market drops more than 5%.⁶

It’s important for all types of investors to remember that while, yes, it has been a volatile year and, yes, there are real reasons to be concerned, there are always going to be real reasons to be concerned in any market. That’s why investors shouldn’t overlook basic investing principles, especially in times when they’re more likely to make an emotional financial decision.

TrueShares has two dividend-focused ETFs for investors looking to avoid cash drag and get back into the market on their own terms.

The Opal Dividend Income ETF (DIVZ) focuses on a concentrated portfolio of high-quality dividend payers across a range of sectors. It seeks above-average dividend yield with an emphasis on dividend growth over time. DIVZ now pays monthly distributions, which is a great feature for investors seeking regular income.

The TrueShares Active Yield ETF (ERNZ) takes a different approach for investors more interested in yield. The fund consists of 50-150 income generating securities and also aims to provide stable cash flow, lower volatility, and long-term capital appreciation. ERNZ also pays monthly distributions.

Dividend Paying Security Risk. Securities that pay high dividends as a group can fall out of favor with the market, causing these companies to underperform companies that do not pay high dividends. Dividends may also be reduced or discontinued.

TRUESHARES

TRUESHARES

Why Hold Cash When You Could Hold Dividends?

Recent Posts

Request a meeting with our investment team

Request a meeting with our investment team