There is a quiet anxiety that grips many investors in times of rising markets. The fear is simple and seductive: “The market is overdue for a correction. I should sit in cash until prices fall.” It feels prudent. It sounds cautious. But this mindset traps investors in what we call psychological paralysis—a state in which the desire to avoid short-term pain becomes the cause of long-term capital erosion.

The data tells a different story. Since 1926, the S&P 500 has returned about 10% to 11% annually on average, including dividends. Yes, corrections happen—declines of roughly 15% occur in an average year. What that means in the short-term is that an investor’s $5 million falls to $4.25 million, and they would certainly notice that when checking their portfolio balance online! But corrections are features of the market, not bugs. They are the price of admission and they happen. And when they do, sitting in cash does not protect you from anything meaningful; it only ensures that you will be buying back in after prices have already started to recover. That is the reality of what investors do in real life.

Here is what we need to reframe: the risk we should actually fear is not volatility, it is the long-term destruction of capital through inflation. We manage short-term market volatility not through elusive market timing, but through what we call the buckets. Short-term money—funds for expenses over the next one to three years—lives in cash, bonds, and GICs. That money is protected from market swings. Long-term money has a very different job. It must grow faster than inflation systematically erodes your purchasing power.

And this is where the real risk becomes impossible to ignore. The Federal Reserve and the Bank of Canada proudly target inflationary price stability at 2% per year. That is an oxymoron. In literal terms, price stability means prices do not move. But 2% annual inflation means prices rise every single year. Your purchasing power falls by roughly 2% annually. Over twenty years, that amounts to approximately a 33% erosion in purchasing power: $100 of purchasing power today will buy only about $67 worth of goods in twenty years, measured in today’s dollars. That is not stability. It is erosion—gradual, persistent, and relentless.

If you are sitting on cash with long-term capital out of fear of a 15% correction, you are accepting a certainty—2% annual inflation eroding your purchasing power—to avoid a temporary event that has historically given way to a recovery. This is not sound and over long time horizons, your real risk is not market volatility, it is the destruction of purchasing power caused by inflation.

The solution is not to ignore volatility. It is to align your time horizon with your asset allocation. Short-term needs always belong in cash. Long-term capital must be invested and allowed to compound. History shows that investors who remain sidelined by paralysis miss gains that build over decades while still absorbing inflation over the same period. That is a trade-off worth reframing.

Randy, Ian and Harrison

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