Edit ModuleShow Tags

The hidden asset class

What asset class maintains value despite the markets? Lowers risk? Diversifies your portfolio? Is low- or no-fee? Is extremely liquid? And is usually overlooked as an investment category?

You guessed it: cash. Moola. Dough. Smackers. Simolians. Shekels. Wampum. Benjamins. The green stuff, which is now mainly electronic bits floating around our economy, is an endangered species. Even wallets are becoming obsolete with smart-phone payments. Yet, when markets falter, “cash is king.”


This investment is available in many forms. Several are FDIC insured and sold by banks. Others may have SIPC insurance and are offered through brokerages. Some types are:

• Money market funds
• Certificates of deposit
• Bank savings & checking accounts
• Treasury bills

  Cash equivalents are usually investments that mature in 90 days or less. It could be cash in the bank (very liquid) or a 3-month T-bill.

There are even some mutual funds that invest in super-short-term bonds that are in the gray area of being considered a cash investment.


Cash is an important part of a portfolio. If you have a long-term horizon, you might want 0-5 percent of your investments in cash. Ideally, you have high-income investments that are providing a steady flow of cash, acting as ballast for your portfolio.

Depending on the economy, the markets and your level of active investing, at times you may have up to 100 percent cash. I’ll sometimes recommend this to my clients in extreme conditions. Too much cash can make you miss rising markets and other opportunities. It’s a delicate balancing act.


Not all cash is created equal. The U.S. dollar performs against other countries’ cash. These currencies move in value relative to each other. Here’s where cash can become volatile. And be a sophisticated diversifier.

This relative movement is called correlation. If there’s a high correlation then investments tend to move in price together. A low, or negative, correlation sees investments move independently or in opposite directions. According to ProShares.com, currency has a -0.10 correlation to large U.S. stocks. So, if large stocks go down 10 percent then a currency investment could go up 1 percent.

Different correlations can help to smooth-out portfolio volatility. Some investments move up while others are going down. These differences can be useful in maintaining returns with lower risk.

*     *     *    

If you’re looking for an experienced second opinion on your investments, please request my free report “How to Get an Unbiased, Fee-Only Portfolio Tune-Up.” Use the contact info below.

Edit Module
Ron Phillips

Ron Phillips is an Independent Financial Advisor and a Pueblo, Colorado native. He and his wife are currently raising their two sons in Pueblo. Order a free copy of his book "Investing To Win" by visiting www.RetireIQ.info or leaving a message on his prerecorded voicemail at 924-5070. Simply mention Promo Code #1001 when ordering.

Get more of our current issue | Subscribe to the magazine | Get our Free e-newsletter

Edit ModuleShow Tags

Archive »Related Articles

Steps to solve the senior safety puzzle

Erik Listou and Louie Delaware connected on a shared area of expertise and concern in 2011 – home safety for seniors. That grew into the Louisville-based Living in Place Institute.

How the defense industry drives Colorado's economy

DoD’s expenditures on our military installations on more than 3,000 contracts in Colorado makes DoD alone the third largest basic industry in Colorado – essentially tied with agricultural exports.

Try this leadership success secret

Great leaders are both seen and heard through the manner in which they communicate. To build great leaders, we need to create fantastic communicators.
Edit ModuleShow Tags

Thanks for contributing to our community-- please keep your comments in good taste and appropriate for our business professional readers.

Add your comment: