As Chief Investment Officer, and Principal at Robertson Stephens, Stuart Katz creates and leads the firm’s investment strategy, global asset allocation, portfolio analytics, risk management, manager selection, and overall long-term strategic portfolio and near-term tactical asset allocation investment process.

Russ Alan Prince: What role does cash play in portfolios in 2023?

Stuart Katz: Much of the developed world experienced a low-interest rate environment since 2009 as monetary authorities from around the globe cut interest rates to effectively zero percent to help stimulate economic growth and prevent deflation. This macro dynamic subsidized a “risk on” behavior that many investors considered “cash trash.” However, with short-term interest rates of more than 4%, “cash is king”, especially in a volatile market environment of elevated inflation, interest rate, and geopolitical uncertainty.  

However, inflation drags down the real cash performance, so investors must find thoughtful ways to utilize cash both as ballast and work harder for yield, while still preserving capital. Our process recommends allocating cash based on time horizon and liquidity needs into three primary buckets with purpose: living expenses, tactical goals, and strategic objectives.  

The living expenses portion addresses day-to-day spending, partnering with gateway partners to optimize deposits across multiple banks while maintaining FDIC insurance or investments in low-risk money market funds which can be converted into cash from one to three months. The tactical bucket is for intermediate or undefined spending or investment needs in the next three months to a year. The tactical implementation may include US Treasuries or conservative ultra-short, structured credit with less liquidity than money market funds and somewhat higher yields that may fit in this segment. The strategic segment covers cash needs expected in 1-2 years, which allows for investment in a separately managed fixed-income account strategy that seeks higher yield while still maintaining a focus on capital preservation. 

Prince: What role is there for alternatives in portfolios?

Katz: A long-held belief by many investors that a diversified portfolio of public equities and bonds is the key to a successful financial plan is now being challenged. This is due to changes taking place in capital markets, including the end of the “lower for longer” monetary printing press that started in 2008. What’s an investor to do? The declining number of public companies, increased passive ownership and increased concentration of risk have combined to challenge the opportunity set for investors in public markets. We believe that, for qualified investors, an investment in alternative strategies may complement a core traditional portfolio of public holdings with the goal to achieve some combination of differentiated access to capital appreciation, income generation, and risk diversification.  

A key differentiating element amongst many alternative strategies is liquidity. We believe that investors who can compromise some level of liquidity stand to benefit from the opportunity set in alternatives. For example, we believe when financing options are reduced for corporate borrowers, private debt becomes an increasingly compelling solution to the liquid credit markets.  

Managers with expertise to apply underwriting skills, restructuring expertise, and loan documentation insights can help investors gain access to income and total appreciation for performing, stressed, and distressed borrowers. Ultimately, becoming a provider of liquidity in dislocated markets and identifying mispriced public securities in the secondary markets where traditional bank lending has become a less dominant financing solution allows for opportunistic disciplined credit managers to achieve potentially superior risk-adjusted returns. The opportunity to partner with private equity firms with a successful track record of making control investments to drive operational value creation and discipline to deploy and harvest capital over time allows investors to potentially capture performance through good times and bad times when markets are volatile and investor emotions can be elevated. Real assets such as real estate may allow investors to potentially gain access to durable income and capital appreciation in assets with inflationary benefits. Finally, certain hedge funds may offer better “risk manage” equity or credit exposure dependent upon their net exposure, strategy, and leverage.  

Prince: What are common investor biases?

Katz: Investment decisions are typically subject to several biases. A bias is an irrational assumption or belief that distorts judgment and the ability to make decisions based on the evidence. 

Investing biases can lead people into making financial decisions for reasons other than those led by the facts, potentially negatively impacting a portfolio's ability to protect and grow capital. “Going with your gut” as a default option may not be as reliable over time as a more objective disciplined process. Today, a lot of information is freely available to investors which often leads them to take their own decisions and makes them susceptible to various biases. 

We are only human and subject to this bias. As a result, several ways to help mitigate these issues are to first try to manage emotions by a “name it to tame it” mindfulness to identify what you are feeling to calmly distinguish between facts and feelings. Second, investors should remember the importance of time horizons and the distinction between risk tolerance and risk need. The purpose of investing is not only to earn the highest return but appropriate risk-adjusted returns in the context of a financial plan with specific objectives and goals.  Patience is a critical characteristic of investing and recognizing time in the market is better than trying to time the market. Asset allocation and rebalancing may also help diversify your portfolio with the goals to achieve growth and protection against permanent impairment of loss.

RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine ( and Chief Content Officer for High-Net-Worth Genius ( He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.