Managing cash in your portfolio

October 24, 2012

 

Having enough cash on hand to meet current living expenses or for emergencies is essential. In maintaining cash in a portfolio, investors must make two important decisions: how much cash to hold and where to hold it. In this research paper, the authors explain that each individual's specific cash requirements are based on factors such as the person's liquidity needs and how financially conservative the investor is. The paper reviews a number of cash management options (such as money market funds, Federal Deposit Insurance Corporation (FDIC)-insured accounts, certificates of deposit, individual bonds, and short-duration bond funds). The authors furthermore summarize key considerations that investors should take into account when choosing from among the many cash management vehicles, and their comparative advantages and disadvantages.

Notes:

All investing is subject to risk, including possible loss of principal. Investments in bonds are subject to interest rate, credit, and inflation risk.
 

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