One of the least covered aspects of investing is how cash plays a role in your portfolio. The idea that cash is king has some truth to it. But it’s not without its risks either. In the end, it all depends on your investment strategy.
By cash, I mean money in savings accounts or money market accounts, and money market funds in a brokerage or retirement account. Lets be clear, this isn’t money you plan on spending next week, next month or next year. It’s not emergency or rainy day money either. That’s a separate topic altogether. This money is part of your investment strategy. Only it’s not invested because of the benefits cash offers.
Benefits
Cash in a portfolio is a commonly discussed topic by the finance media. Fund managers are hounded about their cash allocation. Where their funds’ allocation sits in the near term. And what they plan on doing with that money. In this case, their performance is reliant on their short-term strategy and tied to their annual performance compared to the S&P 500. Continue Reading…
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Index-based ETFs and index funds are popular choices for investors these days. The low costs and simplicity are a big selling points. Not to mention the fund marketing blitz reminding us how often actively managed funds fail to beat the S&P 500 index. But do you know how that underlying index works? Is it built to be a good investment strategy? Or should alternative index weighting methods be used?
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