We all understand the value of cash. The pound in your pocket has an obvious and solid worth, even if these days it is more likely to be a line of digital code on your phone than an actual coin.
But for most people cash is not an asset class, in the same way that shares or bonds are assets – something that you can invest in and profit from.
At Continuum, we believe this is a mistake – and so we are looking at the value of holding cash, where best to do it – and how it can even help you make the most of your wealth.
What can cash do for your investment portfolio?
We believe that holding some cash is actually an integral part of building an investment portfolio. It is the only asset class that doesn’t pose any capital risk – meaning that you won’t lose any actual value by keeping your money in ‘cash’.
Almost all investments can go down as well as up in value. Cash is cash, and even when it is in a savings account it is safe and protected by the government’s Financial Services Compensation Scheme (up to the limit of £85,000 per person, per UK authorised bank or building society.)
We can show you how to use cash to protect your wealth.
If you’re uncomfortable when markets are volatile and worry about losing too much value with other asset classes, you can transfer a smaller or greater proportion of your portfolio into cash and ride out any storms.
Introducing ‘cash investments’
You can simply use a savings account for your cash. Our Cash Calculator can help you find the accounts offering the best returns.
However, those returns maybe rather unexciting. We can help you find more rewarding alternatives to savings accounts with ‘cash investments’ which are money market funds. These are usually securities that take the form of short-term loans which pay regular interest, usually with a repayment period of less than a year. These securities are powered by various types of money market instruments like certificates of deposit, bankers’ assurances, promissory notes and company commercial paper.
They work a little like bonds, but can offer also lower risk than bonds because of their shorter repayment period.
Money market securities are among the lowest-risk investments held by unit trust funds other than physical cash, but there is a risk to your capital.
They are usually provided by asset managers who buy a mix of money market securities issued by various companies, banks and governments, with various maturities from a few days or weeks up to 12 months, to be held in their money market unit trusts and multi-asset unit trusts for their diversification benefits. Funds are priced and interest is added daily.
The risks of cash
Cash can therefore be an important part of your investment tactics, but it is not without some risks.
The problem is inflation. You could see the spending power of your money fall if inflation is higher than the interest rate you receive. This is known as inflation risk, and it can make it difficult for cash investments to maintain the value of your money – but inflation is lower than it has been. The Office of National Statistics suggest that the headline rate of inflation is now running at 1.5%, and it is possible to find savings products that can beat that figure.
How we can help manage your cash
At Continuum, we go some way to help provide the answers you need when it comes to cash.
- Our Cash Calculator can help you plan your short-term needs. For the longer term we can help with sophisticated techniques like Cash Flow Modelling, which can show what you need to do now to have the kind of cash you want in the years to come.
- We can help you find the best place to put cash for an emergency fund, and to decide just how much of your wealth you really need to keep as cash.
- We can also provide the help you need when it comes to planning your portfolio. That can mean making cash investments, diversifying to ensure you have a broad spread of asset types – and using your cash to seize opportunities when they come along.
To find out more about cash, and its role in making the most of your investments, call the Continuum team today.
The Financial Conduct Authority does not regulate deposit accounts.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Equity investments do not afford the same capital security as deposit accounts
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