Is cash trash?

Geoff Warren  |  Australian National University  |  24 March 2021

With cash currently offering virtually no return, the question arises as to whether there is any reason to hold it as an investment. I will argue that it does have a role in portfolios due to some relatively unique risk reducing characteristics. While I use the term cash in this article, I am really talking about short-term interest-bearing instruments such as bank-accepted bills, which are commonly called ‘cash’ by the investment industry.

A traditional view is that the role of cash is to provide immediate liquidity. This perspective tends to be overplayed. Most portfolios can readily raise liquidity b...

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