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The Investment Assets Handbook: A definitive practical guide to asset classes by Yoram Lustig

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Chapter 4: Cash

Cash is king, at least when most other asset classes lose value. Cash is considered a ‘risk-free’ asset as it is not supposed to lose money under any circumstances and in nominal terms cash should not have negative returns. This is not always true though. In the 2008 crisis many money market funds, which were benchmarked against LIBOR and classified as cash-equivalents, lost money since they invested in risky securities (such as asset-backed securities, ABS) to increase yield and outperform the LIBOR benchmark. The 2008 crisis drove these funds into negative territory, so they were clearly not risk-free.

In real terms, cash is not a risk-free asset since during many time periods cash returns have lagged inflation and experienced ...

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