an tSionna: Cash

From Blackrock a chart illustrating the cost of holding cash in a portfolio.  They point out that, "it is worth reminding ourselves that inflation is the major downside of holding cash.  Even in the low-inflation environments in much of the developed world, returns on cash have not kept up with consumer price increases.  So the value of cash diminishes in real, or inflation-adjusted terms over time."

I never think of cash as an investment per se, especially in this low interest rate environment.  However, there are times that it acts as a hedge particularly when equities are declining.  Cash may be a zero return asset in this environment but zero return beats a negative one sometimes!  I tell clients that they can gage my view of the markets by how much cash they have in their portfolios.  Here's a rough guide:  0-12% is a bullish view.  12-18% is neutral.  Anything above that is a bearish view.  In 2008 in many accounts we had above 30% cash positions.  Today on average we hold 12-15% cash.  This is in keeping with our current  NET MARKET NEUTRAL environment.

Link:  Blackrock: The Cost of Cash.