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Cash: A Safe Place
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When serious investors talk about their cash position, they don't mean the money they're carrying around in their wallets or purses. They mean the money they have in investments that they can quickly convert to cash.
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In an investment context, they include such things as short-term CDs (Certificates of Deposit), US Treasury bills, short-term commercial paper, short-term municipal and corporate bonds and notes. They also can include savings accounts and other investments with short lives. Money-market accounts and GICs (Guaranteed Investment Contracts), which are like high-powered savings accounts, also are generally considered cash.
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Cash investments are generally considered safe and liquid (meaning they can be bought and sold quickly). They generally don't earn as much as stocks or bonds and are less volatile, making them relatively low-risk investments.
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Most investment experts recommend that you increase your allocation to cash as you approach or are in retirement (since your objective should be to protect rather than grow your account). It is generally not a good idea, however, to have large allocations in cash when you are saving for retirement, especially if you are young. If you want your money to grow, you need to invest in stocks and bonds, where it will earn more. Stocks and bonds, though, carry more risk than cash investments.
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As a side note, it's always best to invest in cash rather than stuffing money under your mattress. First of all, your house can burn down and you will lose it all. Second, cash investments generally keep pace with inflation–the money under your mattress won't. Over time that money will lose its value. Consider this: $4,000 in 1970 could buy you a new car. Today, it may only cover the sales tax on a new car.
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