Investing's Four-Letter Word
There is a word that rarely if ever gets mentioned in the financial media and I can almost guarantee they will never utter it on CNBC, but you need to know it. The word I refer to represents a type of investment that is very unsexy and therefore it won't hold your attention in the way that stocks, bonds, or commodities would. And yet, this item is becoming more attractive with each passing day so you need to start paying attention to holding c-a-s-h!
A noted research strategist from Merrill Lynch has recently increased his suggested allocation to cash, while pointing out that stocks have returned just 2.7% a year for the past seven years which is less than you can get on your cash right now. And cash returns are about to get even better!
Most people have their money in stocks and real estate, but these are overpriced. Stocks are expensive with a P/E of 20, and a tiny dividend yield of 1.8%. And real estate seems to be the popular topic of conversation among the "trivial many" and we should remember what Warren Buffett teaches about how we should behave when others are greedy.
Cash in the bank that pays 4%, with no fears of risk, looks pretty good - especially when we factor in the "not so hot" prospects for stocks and real estate over the coming years.
So you need to pay attention to your cash level relative to your riskier assets. And if it's extremely low, ask yourself why...and then determine if you should start increasing your cash position.
Cash is the four-letter word in the investment world, and your broker won't get rich by recommending that you increase your cash position. But a very safe 4% a year is nothing to ignore - especially when you compare it to a world of risky overpriced assets that may not be able to beat the return on your cash over the next five or ten years!
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A noted research strategist from Merrill Lynch has recently increased his suggested allocation to cash, while pointing out that stocks have returned just 2.7% a year for the past seven years which is less than you can get on your cash right now. And cash returns are about to get even better!
Most people have their money in stocks and real estate, but these are overpriced. Stocks are expensive with a P/E of 20, and a tiny dividend yield of 1.8%. And real estate seems to be the popular topic of conversation among the "trivial many" and we should remember what Warren Buffett teaches about how we should behave when others are greedy.
Cash in the bank that pays 4%, with no fears of risk, looks pretty good - especially when we factor in the "not so hot" prospects for stocks and real estate over the coming years.
So you need to pay attention to your cash level relative to your riskier assets. And if it's extremely low, ask yourself why...and then determine if you should start increasing your cash position.
Cash is the four-letter word in the investment world, and your broker won't get rich by recommending that you increase your cash position. But a very safe 4% a year is nothing to ignore - especially when you compare it to a world of risky overpriced assets that may not be able to beat the return on your cash over the next five or ten years!
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posted by Bob Moser at
3:42 PM
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