“Right now, it’s not much of a problem, if the expected return from equities is, say, 14 per cent [a year] and from cash it’s 5 per cent. There is a huge equity risk premium. “The risk of underperfomrming cash is pretty low right now. You’re being handsomely rewarded for taking the risk. “Even if things go horribly wrong, and you get a return of 1 per cent to 2 per cent out of equities for the next couple of years, that’s more or less what you’re getting out of cash, after tax.
“The chances of dramatically underperforming cash over a longer time frame are pretty low right now.” Even so, piling all your money into equities would not be a good move. “I would still want to be really well diversified,” Farrelly says. “One of the things about diversification is people bag it on the grounds that it has not worked in the past couple of years, because everything has gone down. “Well, we know that when things are really crook everything goes down. “But if it hasn’t helped that much over the last few years, it certainly hasn’t hurt. And you’ve got something that has the power to do you a lot of good.”
