Q2 2025 Cash Outlook Cash Is Both Shield and Sword
The current politics crises again point to the importance of clever cash investing. Historically, those who maintained unleveraged positions and proactively de-risked their portfolios were the ones best positioned to endure market turmoil and emerge stronger on the other side.
Throughout history, financial crises have repeatedly taught a crucial lesson: survival favors the cautious.
In times of heightened economic uncertainty, the prudent course is often to hold more cash and wait for calmer markets. Cash not only provides liquidity and security during volatile periods, but also grants the flexibility to seize opportunities when asset prices eventually correct. Historically, those who maintained unleveraged positions and proactively de-risked their portfolios were the ones best positioned to endure market turmoil and emerge stronger on the other side.
Looking back at events like the Great Depression of the 1930s, the stagflation of the 1970s, the Dot-Com bubble burst in the early 2000s, and the global financial crisis of 2008, the pattern is consistent: overextended leverage and risky exposures led to catastrophic losses. Meanwhile, investors and institutions that preserved capital and avoided excessive risk were not only able to withstand the storm but also capitalize on the recovery by deploying cash at distressed valuations. Warren Buffett famously emphasized this approach, maintaining that cash is not just a poor investment in good times but a valuable option in bad times.
Today, similar caution is warranted. The current administration’s aggressive stance on tariffs, particularly its intent to impose levies on all imports, injects a significant layer of uncertainty into the global economic outlook. However, it is important to recognize that today’s economy is fundamentally different from that of the 1930s, making it unclear whether tariffs will have the same damaging effects as they did during the Great Depression.
The global financial system is far more integrated, and both monetary and fiscal tools are more sophisticated and responsive. Furthermore, there is an unprecedented amount of cash and liquidity standing by in the system, which could serve as a powerful buffer if the economy begins to falter. Massive liquidity injections in recent years, combined with more proactive central banks, could mitigate the worst potential outcomes of policy missteps.
Additionally, the global consumer—particularly the US consumer—enters this period of uncertainty from a position of relative strength. Household balance sheets have been substantially deleveraged, with borrowing levels much lower than they were 15 years ago, and certainly far healthier than during the 1930s. This improved financial resilience among consumers could provide a stabilizing force for the economy, helping to sustain demand even amid rising costs and policy headwinds. While risks remain, especially in such an unpredictable policy environment, these factors suggest that any downturn may be more shallow and manageable than past crises.
It is also worth considering the broader historical context. Throughout history, we have seen dramatic changes in culture and society. At times, both peaceful and violent revolutions have established new rules that allow a society and economy to flourish. Perhaps tariffs represent such an answer—the “new rules” that will ultimately benefit a complex, globalized economy. Or perhaps they will prove to be the catalyst for disorder and disruption, spurring a period of upheaval that gives rise to new leadership and fresh ideas better suited for the challenges of the modern world. Time will tell.
In such an environment—marked by geopolitical tensions, unpredictable policy shifts, and elevated market volatility—cash serves as both a shield and a sword. It cushions against downside risk while preserving optionality for future investments under more favorable conditions. Until there is greater clarity on policy direction and macroeconomic stability, exercising patience and prudence remains the wisest strategy. History has shown time and again that it is the cautious, the unlevered, and the de-risked who ultimately endure—and prevail.