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Cash or Stocks: Deep Risk vs. Shallow Risk for Physicians


Physicians, it is time to reevaluate holding cash for your retirement. Here’s why.

Three years ago, I talked to a very accomplished physician in New York City, who, much to my surprise had all her money in cash.

I asked her why. Her answer: “The market is unpredictable, investing is too risky, it’s much safer to be in cash.”

If you share her sentiment, I want to make sure you understand a very important idea: market fluctuation is shallow risk, and cash is deep risk. Cash is much more risky than stock market fluctuation.

Why so?

To explain further, let me first define what is deep risk and what is shallow risk.

Deep risk is the risk of loss that you will never recover; shallow risk is the risk of loss that you will almost surely recover.

Stock market fluctuation is the most typical shallow risk. In the U.S., there has not been a recession (bear market) that has not recovered. See my early article about recession and stock market performance.

During the Great Depression, even if you rode the market down to the bottom (nearly 85 percent loss,) if you had invested in high dividend stocks and reinvested the dividends, you would had recovered in three and a half years, based on my research.

During the recent “great recession,” if you had a balanced 50/50 portfolio, and you rebalanced religiously, you would had gotten back even 11 months after the market bottom. (This is the experience of my older clients who have a 50/50 portfolio.)

Compared to market fluctuation, if your money is all in cash, you can expect to lose 2 percent to 3 percent per year to inflation. In 10 years, that’s 20 percent to 30 percent; in 20 years, that’s 40 percent to 60 percent. This loss to inflation is something you will never recover!

Such is the deep risk of holding cash for your retirement.

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