Understanding The Cash Portfolio And How It Is Used

I am often asked about the cash portion of my entire portfolio. As regular readers know my strategy for my entire portfolio is 40% in stocks, 30% in bonds and 30% in cash.

The cash portion of my portfolio spends most days resting comfortably in an investment account which since the financial crisis of 2008 to 2009 has been earning about 1% annually. While this seems like such a small amount my cash is actually not idle but busy every single day so a 1% return is not goal.

There are three key aspects to my cash portfolio and how it is being used every day. The value of keeping cash at the ready is an important aspect of becoming a consistently successful investor. Cash provides flexibility and while the old saying of “Cash Is King” certainly does hold true, it is just as true that using cash properly can assist investors in reaching their goal of compounding their portfolio and growing their capital. Like everything in my portfolio, there is a strategy being used even for my cash.

This is a Fullyinformed Members Article which is part of the series on How To Become A Better Investor.

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