WSJ Asks, "Why Cash?"
Late last week, The Wall Street Journal wrote "Cashing In: Why Cash Should Be in Your Portfolio Again." It says, "Holding cash is investment heresy after a decade of the lowest interest rates in history. It is time to consider the sacrilegious and add cash back into portfolios. The value of cash was demonstrated in the first quarter: Both stocks and bonds lost money -- the first quarter that has happened since the aftermath of Lehman's failure in 2008. Cash turned out to be the safe asset. The past three months highlighted the lack of risk, at least in nominal terms, of holding cash. But cash and near-cash products have three properties that ought to be appealing at the moment: a yield above inflation, a guaranteed value to cushion a portfolio and the firepower to buy back in after a dip. The combination of the Federal Reserve's rate increases and the Trump administration's fiscal profligacy has pushed up the yield on cash and cash-like instruments to the highest level since October 2008. A bank deposit still pays next to nothing, but money-market funds are offering as much as 1.75%." The Journal piece adds, "There are good reasons to worry that both the short-term cushion provided by bonds when equities drop and the longer-run gains from falling yields could be coming to an end. If they do, cash will be a better way to shield a portfolio against stock price falls than bonds.... Finally, a cash cushion gives investors the freedom to take advantage of selloffs. Last year this optionality was worthless, as the market went up almost in a straight line. With the return of volatility, the firepower a cash pile gives to enter the market after a selloff is valuable again -- at least for those brave enough to buy when everyone else wants to sell." See also, the Journal's "Goldman's Latest Push: Managing Cash for Big Companies."
