7 Steps of Investing Basics – Step 5 Cash Investing

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Step 5 – Investing in Cash

Presented by William Edward Blanken Jr

Cash and cash alternatives

In daily life, cash is all around you, as currency, bank balances, negotiable money orders, and checks. However, in investing, “cash” is also used to refer to so-called cash alternatives: investments that are considered relatively low-risk and can generally be converted to cash quickly. Some examples of cash alternatives include savings accounts, money market accounts, certificates of deposit, guaranteed investment contracts (GICs), government savings bonds, U.S. Treasury bills, Eurodollar certificates of deposit, and commercial paper.

Using cash alternatives

Because of their conservative nature, cash alternatives involve a lower level of risk. However, there is a tradeoff for their relative safety: Their potential return is not as high as investments that involve more risk. By focusing solely on playing it safe, you may limit your investment income, especially over longer time periods.

Cash alternatives can be useful in many ways. First, they can provide relative stability. While cash alternatives can’t assure you of a gain or protect you from losses, they are generally considered safer than other asset classes, such as stocks or bonds. Also, they can provide income on cash that would otherwise be idle. They can serve as a ready source of cash to pay bills or make purchases. For example, cash alternatives can help preserve money earmarked for a down payment or a family vacation. Readily available cash also can help you cope in a financial emergency. Finally, cash alternatives can serve as a temporary parking place when you’re not sure where to invest.

Advantages
  • Predictable earnings
  • Highly liquid
  • Relatively low risk to principal
Tradeoffs
  • Relatively low returns
  • May not outpace inflation

U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid.

 

BLANKEN MANAGEMENT INC DISCLOSURES

The investment advice provided along with the strategies suggested by Blanken Management will vary depending on each client’s specific financial situation and goals. There are risks involved while investing in securities. Considering the risks, you should fully understand the nature of the contractual relationship into which you are entering and the extent of your exposure to risk. Certain investing strategies may not be suitable for many members of the public. You should carefully consider whether the strategies employed will be appropriate for you considering your experience, objectives, financial resources, and other relevant circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of FL. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2020.


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