Saving, Managing Debt, and Budgeting


Why else is cash important to my portfolio as an individual investor?

According to experts at The Wall Street Journal, cash plays a very important role for all of our portfolios at different stages in our financial lives. First and foremost, by preserving capital and insulating it from the downward trend of a market, you have more money available to invest later. There is also a big opportunity cost that must be considered when you think of selling off investments—instead of using cash—in order to acquire new investments. By selling prematurely, you may not realize the gains you wished to make, and may actually incur losses. Many experts believe that if you need cash to make big-ticket purchases such as cars or houses, it is better to hold this money in the form of cash than to invest the money and have to sell the investment after poor performance, or at a loss, after a relatively short period of time. One expert cited the fact that many central banks have priced cash at levels approaching zero (percent interest), creating volatility in the prices of other investment vehicles. So it is best to have a strategy for the proper allocation of cash within your portfolio.


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