Quote of the day by Robert Kirby: "Cash really hurts if you hold it very long in an equity market that is compounding at close to 20% per annum"

“Cash really hurts if you hold it very long in an equity market that is compounding at close to 20% per annum.”

Robert Kirby’s observation captures one of the most important dilemmas faced by long-term investors: the cost of waiting. Cash may provide safety and liquidity, but when equities generate strong compounded returns over extended periods, remaining on the sidelines can carry a significant opportunity cost.

Compounding is the key

The power of equities lies not only in annual returns but in the ability of those returns to compound. When an investment compounds over several years, gains begin generating further gains, creating a snowball effect.

This means that even a seemingly small difference in annual returns can become substantial over a long investment horizon. Missing strong market phases can therefore have a bigger impact on wealth creation than investors may initially expect.

Cash offers safety, but at a price
Holding cash can make sense when valuations appear excessive, risks are unusually high or an investor needs funds for near-term expenses. Cash also provides the flexibility to take advantage of opportunities when markets fall.

However, holding large amounts of cash indefinitely can become expensive if markets continue rising. The investor earns relatively little on idle capital while equity investors participate in the growth of companies and the broader economy.

Kirby’s point is not that investors should never hold cash. Rather, it highlights the importance of recognising that safety has a cost when productive assets continue to compound.

The danger of waiting for the perfect entry point
One of the biggest challenges for investors is deciding when to move from cash into equities. Waiting for a market correction can appear sensible, particularly after a strong rally.

The problem is that markets rarely provide a clear signal before moving higher. Investors waiting for the “right” opportunity can end up postponing their decision repeatedly and miss substantial portions of an upswing.

This can turn market timing into a psychological battle rather than an investment strategy.

Time matters more than short-term moves
Kirby’s observation is particularly relevant for long-term investors because the impact of compounding increases with time. A temporary market decline may be uncomfortable, but a prolonged absence from equities can also materially affect long-term wealth creation.

For investors with long horizons, the focus therefore often shifts from predicting every market move to remaining invested in quality assets while maintaining an appropriate level of liquidity.

A lesson in balancing risk and opportunity
The broader lesson from Kirby’s quote is about balance. Cash is an important part of financial planning, but excessive cash allocation can create its own form of risk: the risk of missing compounding.

Investors need to distinguish between cash kept for genuine financial needs and cash held because of fear, uncertainty or the hope of perfectly timing the market.

Ultimately, Kirby’s message is a reminder that in a strongly compounding equity market, the decision not to invest is also an investment decision—and one that can carry a meaningful opportunity cost over time.