Good Ol' Cash - When uncertainty abounds, cash is a beautiful thing

Written By: Tom Hankes  |  Posted: Saturday, October 1st, 2011

         Cash is the unloved asset, an asset orphan that nobody loves.  Many people do not even consider cash an asset class.  Cash is ridiculed like the bespectacled class nerd with the mechanical pencils in his plastic pocket protector.  It's an investment pariah.  It is consistently and universally the smallest allocation in any brokerage recommendation.  Show me an allocation to cash of greater than 20% and I'll buy you dinner.  Mutual fund cash levels were recently at 3.4%, the lowest ever.  In the investment community, it's practically a felony to have clients with large cash allocations.  After all, they have a lot of stuff to sell you.

          I've had clients disagree with me when I suggested they park their money in cash for awhile rather than stay fully invested.  I've also had clients argue that they should only pay me for the amount of their money actually in investments other than cash.  They did not consider that the strategy may work against them.  If an adviser recommends cash for a client and charges fees based on assets under management and the client refuses to pay fees on the amount parked in cash, it would take a certain level of self restraint for that adviser to not come up with some creative investments to use up that extra cash (since the size of his fee depends on how much is invested), even though cash may have been the best place by far at that particular time. 

Sign into your account to read the rest of this article. »