Updated: Oct 26, 2022
Why do we hold cash and cash funds?
Reeves Independent, in common with most of the investment world, uses cash as an asset allocation tool. Like other assets, such as bonds, property and equities, cash serves an important purpose in a diversified portfolio. We are happy to hold cash in our portfolios and to use higher levels to support short term income or capital requirements. We also hold cash in the face of serious short-term threats to the market, an important part of our strategy in difficult market conditions, especially in our Tactical portfolios.
Cash assets are liquid and can be accessed quickly and easily, which allows more flexibility to adjust the portfolios to any buying opportunities, without having to take the time to sell other assets first.
We carefully assess the allocation we give to each asset class to ensure the risk the portfolio carries is in line with the objective of the portfolio, be it Cautious, Balanced or Adventurous. Despite potentially higher returns on offer, if we were to invest this cash into other assets, such as equities, it would increase the risk level of the portfolio above what we consider its objective to be.
Recent conditions have made the global market one of the most uncertain the investment world has seen in years. During times of market uncertainty, cash can reduce the volatility of the overall portfolio.
There are some clients who have 100% cash portfolios. Those clients who have chosen to hold more cash than recommended are contacted monthly to ensure they know the long-term risks of inflation and fees eroding the real value of their portfolio. The current interest rate on Transact is 0.18% on cash held, much less than fees and inflation, so although 100% protected against market falls, the value of cash portfolios will likely be eroded over time.
This newsletter is for information only and represents the opinion of Reeves Independent Limited only and should not be seen as advice or a recommendation to act.
Note that investments can go down as well as up and you may not get back the full capital invested.