Cash isn’t always trash. In fact, there are times when cash can glitter and save your client from a market or personal disaster.

Besides the relatively rare periods when cash has actually been the best-performing asset, having some cash on hand at other times might ensure that an advisor can preserve a plan. That’s because some clients making progress in reaching their goals are actually quite vulnerable—in being cash poor. And their investment progress could come to a halt in those cases because they have to make difficult short-term moves.

That’s the fear of some advisors, who have various approaches to avoid selling winning investments prematurely.

Todd Ericson, an Overland Park, Kan., advisor, says it’s important to anticipate these potential cash problems.

“Prior to each quarterly meeting, we ask our clients to give us their current bank balances,” he says. “We then determine if they will need additional cash from their portfolio, and if so, develop a plan to make sure our clients have the cash they need when they need it.”

How does one balance the goals of growth with the need to have enough cash on hand to handle periodic emergencies? And what is the best way to hold the cash part?

Ericson says clients should have 12 months’ worth of cash on hand to avoid having to sell securities during a market dip. The cash component of their portfolios, he adds, should be discussed at every scheduled client meeting.

Where should it be stored?

“I use money market mutual funds and/or short-term bond funds,” says Edward Snyder, an advisor in Carmel, Ind. “This gives some yield on the money but also provides the stability you're looking for from a cash investment.”

Michelle Buonincontri, an Anthem, Ariz., advisor, says those with access to the Thrift Savings Plan can use its G Fund—the Government Securities Investment Fund—which “makes a great cash component of a retirement account, as it is guaranteed, with an interest rate equivalent to a long-term security.” She says it is currently yielding 2.25% in October 2019.

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