How much cash to hold?

Investors should always have a modicum of cash in their long-term savings plans – a reserve of between 5 and 7 per cent is typical. But in today’s uncertain circumstances, is that enough? Take the cash position now at the venerable £860m Temple Bar Investment Trust. It is a generalist, “core holding” trust, heavily invested in leading FTSE 100 stocks. Over the past 15 years it has seen a 336 per cent return against a 238 per cent gain in its benchmark, the FTSE All Share Index.

Today Temple Bar’s investment manager Alastair Mundy is holding 12 per cent of the portfolio in cash – possibly the highest it has been in 91 years. There is also a 5 per cent holding in gold. Mundy’s concerns will be shared by many. No-one is sure how central banks can unwind the massive programme of quantitative easing without triggering a sharp fall in asset prices. It’s not that he’s convinced it will all go wrong. It’s that no one is confident about how all this will finish. Hence the build-up of cash. This is an ever-more popular club to join – and it’s growing by the week.