It illustrates the importance of creating a well diversified and thought out investment strategy that suits your individual risk profile.
Many people are arguing that it's a great time to have your money invested in cash considering the volatility in the markets vs the high interest rates you are getting on term deposits and cash.
On the short term this is probably quite a good strategy. Certainly if you look back over the last twelve months it would have been an excellent strategy given what has happened. However research clearly shows us that cash is the lowest performing asset class over time.
The challenge becomes, when do you take your money out of cash, as there is an opportunity cost of holding cash over the long term in the form of a lower return. If you have a very conservative risk profile it might be worth considering.
There is a trade off of lower overall return versus more certainty of returns and lower risk. Research also shows us that missing the few best days of performance in the sharemarket can significantly lower our return over the long term.
So the issue then becomes one of timing. In my experience and numerous studies I have seen have clearly shown that the majority of people are pretty lousy at market timing. Therefore there is a strong argument that unless you are an expert in a particular investment field you are probably better off with a well structured and diversified approach to your investing.
If you do have cash at the moment it may be a good time to consider re-entering the investment markets. There are some good opportunities around but you need to do your homework so you know what you are investing in and how it fits into not only your appetite for risk but your long term plans.