Cash is not a component of the portfolios managed by David Bize, an Oklahoma City advisor. However, he makes sure his clients have enough emergency cash reserves or sufficient cash flow from earnings, pensions, Social Security, etc., for an applicable time frame.
He says his client portfolios are fully invested without cash. He uses money market funds paying 1.9% or better as emergency cash reserves.
Emergency Money
But William Jerome, an advisor in Scotia, N.Y., says some clients have large amounts of cash in very low paying money market accounts. They think they’re getting a deal, but they are not.
“I have to tell them that with inflation they are actually losing money,” Jerome says. He says there’s a better way of keeping some cash on hand: He stashes cash in short-term ETF bond funds that pay about 3%.
“You can use a low-cost broker and you’ll have the money within a day,” he says.
Jerome, who also doesn’t like to count cash as part of a portfolio, says some clients simply want to keep $10,000 to $15,000 on hand for emergencies.
However, despite the pathetic performance of cash over the last few years, there is a case that can be made for this “trashy asset” (besides its use in avoiding shortages).
There are still periods, even as long as a decade, when cash is a better investment than stocks, according to a LendingTree.com study. In a recent 51-year period, cash was the best performing asset 30% of the time, the study found.
Hard times for equities often mean all that glitters is not financial assets, but instead garden-variety cash, such as certificates of deposit (CDs).