The Case for Keeping Some Cash

For the first time in years, cash accounts are competitive with yields on many classes of bonds and blue-chip stocks.

Two issues ago, I urged everybody to suspend all inclination to brood about gathering risks or missed opportunities and let one’s portfolio snooze. I obeyed my own counsel, not only by skipping this column for a month, but by ignoring my IRA and 401(k) and other investment accounts. In August, I sold a house I’d owned for 27 years, but so far, the proceeds are in the bank while my wife and I decide what comes next. (We’ll probably zero out the mortgage on our vacation—and our eventual retirement—home.) Whether it’s ad­visable for others to grab some capital gains, pay off debt or make other moves is a personal, life-stage decision rather than a blanket financial strategy.

Besides, anyone who forswore buying and selling securities since June, not counting autopilot transactions, has done just fine. Stocks advanced a little, bond yields and returns barely budged, and real estate investment trusts kept rallying. And although economic and monetary stress is spreading, investor harm has so far been limited to suffering or un­stable places such as Argentina, Brazil and Turkey (for more, see How to Navigate Investing in Emerging Markets). Such iffy markets deserve only the lightest presence anyway in a low-risk, income-driven investment plan. The super-strong dollar, a lead cause of emerging-markets troubles, isn’t without drawbacks, but it supports the value of U.S. bonds and real estate. It also restrains American inflation.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.