The Convenience of Cash

Cash investments can add stability and flexibility to your financial strategy, and income to your portfolio - all of which become increasingly important when you retire.

Yields on cash investments are higher than in recent years, making cash even more attractive. Here are some of the ways you can put your cash to work to help you meet your day-to-day financial needs.

Everyone needs cash for daily living expenses. If you're still working, it would be a smart move to hold three to six months' living expenses in a separate emergency fund to cope with unexpected financial needs. For retired investors, a good idea would be to set aside enough money to cover the next 12 months' worth of portfolio cash withdrawls. And you should consider this as money that is "already spent."

It's also a good idea to invest another two to four years' worth of expenses in "near-cash" investments such as ultra-short bond funds or longer-term CDs, which typically pay higher returns than money funds do but are slightly less liquid. That way, if a bear market occurs, you might be able to avoid having to sell stocks or other growth investments at relatively low prices to meet living expenses. These additional cash balances can also create flexibility in your personal plans, allowing you to make an unexpected purchase without dipping into stock funds or other long-term investments.

Cash investments can play an important role in your finances, especially during retirement. This includes providing ready money to meet daily expenses and cope with emergencies, as well as adding steadiness to your long-term investment portfolio.

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