Last year was a tough one for stock and bond investors, many of whom flocked to the relative safety of cash amid the market turmoil. Hedge fund manager Dan Niles, for instance, opted to navigate the bear market by staying on the sidelines , and Citi was one of several investment banks that were overweight cash last year. The strategy paid off. “Cash did generate a small gain in nominal terms, making it the year’s second-best performer of ten broad asset classes,” Steven Wieting, chief investment strategist at Citi Global Wealth, wrote as part of the bank’s “2023 Wealth Outlook” report. But Citi is now warning of the perils of hoarding cash. “Do not assume you will get security from holding excess cash. Rather, this is a time for putting liquid resources to work,” Wieting added. He pointed to “heightened uncertainty” amid growing risks of a global recession and said history has proven that trying to time an entry into the markets “almost always fails.” “Amid the uncertainty, we see various ways to put cash to work and seek portfolio income. Indeed, we believe the conditions that made life so challenging for investors in 2022 have also created potential opportunities,” he added. Citi warned that hoarding excess cash could “prove an expensive mistake over time” and instead advised investors to have “fully invested, globally diversified portfolios” for the long term. Dividend growers One way to deploy excess cash is in dividend stocks , according to Citi. “We believe clients seeking both portfolio income and principal growth should seek to maintain strategic allocations to quality dividend payers throughout the economic cycle,” Wieting said. He noted that dividends can be “critical to total returns” on a multi-year view, having contributed nearly 40% of total returns for the S & P 500 over the past 90 years. Within this space, Citi is particularly bullish on dividend growers — stocks with a track record of growing shareholder payouts throughout economic cycles. “We have high conviction in dividend growers as a core allocation … We therefore not only seek out decent dividend yields but also consider payout sustainability,” Wieting said. Shorter-term bonds While bonds are usually viewed as a safe haven in times of stock market turmoil, 2022 offered little solace for investors, with the bond market marking its worst-ever performance on record last year. But Citi now sees a “major opportunity” for investors to selectively add bond holdings into their portfolios, especially if the U.S. Federal Reserve’s rate hiking cycle peaks. Less volatile U.S.-denominated bonds “may offer high income even after expected inflation, with low credit risk,” to portfolios,” Bruce Harris, Citi’s head of global fixed income strategy, wrote in the same note. “In addition, should opportunities arise in 2023 in other asset classes such as equities or lower rated credit, short-term securities are typically liquid and can be sold quickly to generate cash to redeploy into these new potential opportunities,” he added. The bank likes shorter-term U.S. Treasuries, investment-grade credit and U.S. municipal bonds.