How can cash work in my portfolio?

Cash investments are also known as ‘debt’ investments. This isn’t because you owe the debt but because you own the debt. You are lending your money to someone else – a bank, company or government and getting interest in return.

Depending on the type of debt investment you choose, the interest you receive can be at a fixed or floating rate.

Debt investments are suitable for meeting short-term investment goals. Even though the returns may not be high, your capital is safer than for equity investments. Currently, some investments are government-guaranteed.

 

 

Advantages

The advantages of holding cash in your portfolio are:

Liquidity: Cash is the most liquid asset.

Fixed value: You always know exactly what your savings are worth.

Simplicity: Anyone can open a savings account.

Security: The government provides a capped bank guarantee for many types of savers’ deposits.

Cheap: Saving and withdrawing using a deposit account is a low cost option compared to other types of investments.

 

Liquidity

This is how easily an investment or financial product can be converted to cash.

Shares in large publicly listed companies that are regularly traded on the stock exchange are considered liquid assets, while direct property investments are less liquid, due to difficulties and time delays that may be experienced when buying and selling.

Liquid markets have enough trading activity to allow both buyers and sellers to easily transact as they wish.

It is wise to hold a reasonable proportion of your investment portfolio in cash. This is based on your risk tolerance and will determine your ratio of defensive and growth investments.

 

Defensive Investments

Cash and Fixed Interest are generally classified as defensive investments. Defensive investments aim to provide steady income and returns are generally stable.

In return for this decreased risk, defensive investments do not usually grow in capital value and returns are generally lower than growth investments over the medium to long term.

 

Growth Investments

Property and shares are usually classified as growth investments. Growth investments can provide income as well as an increase in capital value.

While returns may fluctuate over the short term, growth investments have the potential to produce higher returns than defensive investments over the medium to long term.

Back to Choosing Investments

This information is not advice and has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to the individual's objectives, financial or taxation situation and needs, and, if necessary, seek appropriate professional advice. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia. 

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© Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited, a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.

The information on this page has been prepared without taking into account your objectives, financial situation or needs. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to their objectives, financial situation or needs, and, if necessary, seek appropriate professional advice.

CommSec does not give any representation or warranty as to the accuracy, reliability or completeness of any content on this page, including any third party sourced data, nor does it accept liability for any errors or omissions.

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