WHY KEEP CASH?

Different strategies for investing available cash. WHY KEEP CASH?

One significant difference between many investors is evident in the different strategies for investing available cash.

Some investors will typically choose to be fully invested at all times, since cash balances would likely cause them to lag behind a rising market.  

Other investors, by contrast, are willing to hold cash reserves (for the short term) when no bargains are available.  Among the reasons offered are:

1.  Cash is liquid and provides a modest, sometimes attractive nominal return, usually above the rate of inflation.

2.  The liquidity of cash affords flexibility, for it can quickly be channeled into other investment outlets with minimal transaction costs.

3.  Finally, unlike any other holding, cash does not involve any risk of incurring opportunity cost (losses from the inability to take advantage of future bargains) since it does not drop in value during market declines.


Reminder:
Do not underestimate the power of CASH for the short term.
For the long term, CASH deposits will always lose out to inflation.