Cash

There is my opinion a nasty debate that's taken a new life recently in the investment world over whether cash is to be considered an investment.  You can find a link to that over at the blog of the Reformed Broker here.  Now some of this debate frankly has more to do with the rise in the past few years of the rise of the so called Robo-advisers.  That's a debate for another time and place.   As to whether cash should be considered an asset class I say absolutely.  Here's why:

1.   First of all an account will almost always have some sort of cash component.  Dividends and interest will be paid, bonds will come due, sales will be made without the corresponding investment opportunity.  Even if dividends are reinvested, most portfolios will throw off some interest.  It is almost impossible not to have some percent of a portfolio's assets in cash.   

2.    Cash is a place to park funds while investors wait for better opportunities.  In my nearly 30 years in the business cash was also an asset class that paid you as a place to park your money.  Money markets paid nearly double digit amounts when I started and for many years averaged in the 2-4% range.  At some point when yields start to rise, bonds and bond funds will likely decline in value.  Cash will stay constant.  I see no problem with having a certain percent of a client's portfolio in cash waiting to be opportunistically or strategically invested.  This of course is dependent on a client's unique risk/reward profiles.

3.     Cash is a wonderful hedge in falling markets.  Cash may not pay anything right now but neither is it going down in value.  We view cash as one of our primary ways of hedging versus market risk.  They say nobody can time the markets and there is a large amount of truth in this.  But one can identify periods when probability suggests that returns either for markets as a whole or for investment classes will potentially be subpar.  Paring back on investments during this time and building up a cash reserve for possible opportunities in the future makes sense to me and to investors such as Warren Buffett.  I don't know what Buffett's views are on cash as a whole {I'm sure I could find them if I wanted but I don't have the time or energy to go look right now},  I do know that he likes to invest opportunistically when he can for example take one dollar and turn it into two.  You have to have something in which to make those investments.  Unless he's going to borrow at those points, you have to have cash.

I tell clients that you can get an idea of how we feel about the markets by seeing how much cash we have in their portfolios.  I'm not going to disclose how much that is but in general and in the aggregate clients have more cash today than they did at the beginning of the year.    I'm working on a larger piece on why that is which I hope to post here sometime next week.  Because of that, and until it's done, my posting will be light and short.  

There are some changes coming in my investment thoughts.  I'll detail them to you when they're completed.