There was a good article written in The New York Times today titled, “Where to Keep Cash When No Investment Seems Safe.” Not only is it a good primer on the different types of cash accounts available, but it gives you a sense for how people that have a lot of money invested in the market think about cash savings. It also mentions the trouble with the current market for investing in cash (low savings account APY’s).
Getting the most bang for your bucks is not as simple as it used to be. Inflation is a growing concern, chipping away at the benefits from low-yielding deposit accounts. And there are so many cash products to choose from.
Financial experts say that investors have traditionally kept between 5 and 10 percent of their total assets in cash. But given recent swings in the stock and bond markets, many investors have significantly increased holdings.
How much money should you pull out of the market? It’s truly a personal decision, based on factors like your appetite for risk, your expected retirement age and your everyday cash needs.
In short, the article mentions three major cash categories: deposit accounts, money market funds, and CDs and brokered deposits. The latter two I knew little about, as I’ve never used them.
How much of your portfolio is in cash? Have you increased this amount do to poor investment returns elsewhere?
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I’ve always kept one simple rule for stock investments: always have more in liquid savings than the market. Considering the pain of stocks the past few months, this has turned out to be a lifesaver.