Three reasons to hold cash investments
- They can give you a small, steady, safe income if you need it.
- They can provide funds to invest in the stock market or bonds if there is a change in the stock market that creates new opportunities.
- They can help hold up the value of your portfolio if some of your other investments lose value. For example, if you have equity mutual funds, and the stock market takes a hit, it's nice to see those cash investments holding their value.
How much cash should I hold as an investment?
- If you think you may need your money quickly or you are an extremely conservative investor, you might keep more cash on hand, as much as 20% to 25% of your portfolio. Cash gives you peace of mind because you know you can get the cash if you need it.
- If you're investing for the long term or you're more comfortable with risk, you will likely keep less cash on hand and would invest more in stocks and mutual funds. Your portfolio might include 5% to 10% cash investments.
Which cash investments should I choose?
It depends on your stage in life and the goals you set. It will also depend on:
- How much risk you can handle
- When you'll need your money
- How quickly and easily you want to be able to get your money
- How much you want to make from your money.
Remember: There is likely a role for some cash equivalents in your portfolio
Just be careful not to leave too much of your savings in cash. Cash and cash-equivalent products give you low risk and easy access to your money, but they also have the lowest return.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.