Should you have cash in your portfolio? It depends. Many investors don’t need to load up on cash if they are saving for long-term goals, but cash plays a critical role for retirees and other investors with shorter-term spending needs.
Cash is broadly used to describe not only hard currency but other safe, liquid holdings, such as Treasury bills, money market funds and bank accounts.
There are a lot of these assets out there. Based on the most recent quarterly report from the Federal Reserve, U.S. households own about $4.9 trillion in checking accounts and U.S. currency, $9.8 trillion in savings accounts and short-term instruments, and $4.8 trillion in money market funds. If you added in assets held by corporations, nonprofits and other organizations, those totals would be even higher.
ADVANTAGES AND RISKS
Cash has two main advantages: safety and liquidity. The U.S. dollar is perceived as a safe asset because, while it’s not backed by
