We recognize that a diversified portfolio outperforms cash, most of the time. Would holding only cash have fared better than a diversified portfolio?

On the year, all things being equal, exiting the market and sitting on the sidelines with an entire portfolio would have had its advantages in 2022. At least in the short term. But here's the thing, wealth preservation is a long-term pursuit. Given time, a diversified portfolio, including a don't-sell-the-bottom buffer, has historically outperformed cash and inflation over the longer term.

The compounding nature of investments means capital gains generate additional earnings over time. The same compounding effect is true but inverted for inflation or interest on debt.

To beat inflation, we need a counterweight that can, on average, sufficiently compound in your favor. Cash alone cannot overcome inflation, so we look to a diversity of investments plus time.

Physicist Albert Einstein once said, "The only reason for time is so that everything doesn't happen at once." A thought provoking quote indeed. Here at Vector we see time as the greatest resource for investing.

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