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Question:


How much cash should I be holding in my portfolio, percentage-wise?
-AaronMartinez


Answer:


Cash, in the form of bank deposits, Treasury bills or money-market accounts, earns next to nothing these days, so it's hard to consider it part of an investment portfolio. Like water that dilutes the potency of a drug, the more cash you hold, the lower your returns will be and the lower your risk will be too.
 
A bit of cash is always useful. It serves as ammunition that can be fired into the markets when opportunities present themselves. Which opportunities suit you depends on your investment goals and your personal financial circumstances, age, risk tolerance and so forth. If you're after capital growth with safety and have a long time horizon, then stocks with large dividend yields seem appropriate. For safe income, high-quality corporate bonds could be the answer. On the other hand, if you're saddled with debt, then any cash that comes your way might be better invested in reducing the balance.
-Conrad de Aenlle



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