In this episode, we take a deep dive into the often-overlooked asset class of cash within investment portfolios. While cash is lauded for its immediate accessibility and stability, we explore its dual nature, highlighting its significance in providing short-term liquidity while also examining its limitations in terms of long-term growth potential. We discuss the importance of striking a balance between maintaining liquidity for day-to-day needs and maximising investment returns for future financial security.
Highlights:
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Importance of Cash: We explore how cash serves as the backbone of financial liquidity, facilitating everyday transactions and providing a safety net for unexpected expenses. However, we caution against excessive cash holdings, emphasising the need to optimise its potential within an investment portfolio.
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Drawbacks of Holding Cash: Despite its perceived safety, we dissect the impact of inflation on cash holdings, which can erode purchasing power over time. We also discuss the relatively lower returns offered by cash compared to other investment opportunities, underscoring the importance of strategic allocation within a diversified portfolio.
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