The Wall Street Journal recently ran an article in which they asked a number of investment professionals this question:
Besides keeping some in an emergency fund, should the average investor have an allocation to cash and cash equivalents in an investment portfolio? The Wall Street Journal put this question to The Experts, an exclusive group of industry and thought leaders.
What may interest the average individual investor is the fact that “experts” can take diametrically opposed positions on this question. For a review of opinions see the article. The position of Korving & Company is that cash is an asset class that should be part of every portfolio unless the client specifically requests “no cash.”
What is the purpose of cash in a portfolio? First and foremost it provides liquidity for either emergencies or opportunities. Second, it’s the asset class that will not go down if stocks, bonds and commodities go down in value. Third, and this is related to point number two, cash provides people with a psychological security blanket and psychology is one of the biggest factors determining investment success and failure.