February 06, 2015
It’s often said that cash is king. However, if you are holding large cash balances — with the intention of keeping that money liquid or secure — you might want to consider other options that could meet your risk and liquidity objectives and support your overall goals.
“You might be surprised to learn of investment strategies that could enable you to invest some of your idle cash in a potentially low-risk, low-volatility portfolio and support your goals,” says Jeffrey Kravetz, CFA, Regional Investment Director for The Private Client Reserve of U.S. Bank in Phoenix. “In addition, you may benefit if stock and bond markets are doing well. And that’s to say nothing of inflation. If you leave your money in a cash account that earns one-third of 1 percent, and inflation is close to 2 percent, you may be actually losing money over time because inflation can erode the purchasing power of your cash.
“We believe it’s not timing the market, but time in the market that matters,” Kravetz says. “That’s an old saying, but it’s really true. If you hold securities over longer periods of time, you may manage volatility more efficiently. If your goal is to thoughtfully manage and increase your wealth, consider a well-diversified investment plan, one that strategically addresses cash management needs.”
For example, a 2013 study of the stock market by Fidelity Investments concluded that $10,000 invested in 1980 would have potentially returned $332,502 by 2012, provided it were left in the market the entire time and all dividends/capital gains were reinvested. If that same $10,000 was taken out of the market on the 10 best market performance days, it would have grown to $160,340. And if that same $10,000 missed the market’s 50 best performance days, it would have grown to only $29,327.
A Possible Barrier: Fear
There are many reasons why people choose not to invest their money. One of the most compelling reasons is fear.