Reading the Financial Pages for Dummies®

Chapter 7. Investing in Cash Investments

In This Chapter

• Understanding why you need cash in your portfolio

• Staying protected

• Facing the evil truth about interest rates

You can easily think that stocks and shares are the only really challenging area of the investment business, and the only area that needs a lot of explaining in this book. But tens of millions of investors actually prefer to place their faith in cash investments of one sort of another.

And a good thing, too. As the saying goes, you never miss your water till the well runs dry, and lots of investors were left feeling very illiquid indeed when the stock markets failed to perform in the credit crunch of 2007–2008. The problem wasn't just that their equity investments weren't doing the business for them: people who hadn't set aside enough cash provisions to tide them through a difficult period found themselves suddenly running into quite serious problems with their banks, which were starting to take a tougher line on everybody's finances and had developed a distinct tendency to downgrade the credit ratings of those who hadn't got much in the way of liquid assets.

Meanwhile, people who put their money into safe but boring cash investments were enjoying investment returns that dwarfed what the stocks and shares investors were getting. Cash doesn't often beat equities over a prolonged period, but this has been one of those times.

Everybody Needs Some Cash

Even the biggest stock market bull needs to invest in cash as well – no matter ...