Are Money-Market Funds as Good as Cash?
In stressful times, you may hear advisers and strategists recommend that investors raise their allocations to “cash.” There are two reasons for doing so. First, cash, which is presumably risk free, protects your portfolio from losses. Second, raising cash builds reserves you can use to buy stocks, junk bonds or other assets at lower prices once the backdrop brightens. But just what is cash? And is it as safe as it appears to be? In finance, cash is more than the green paper you carry in your wallet. The financial world’s definition of cash — sometimes it’s referred to as cash equivalents — is any investment with a fixed value that is easy to buy and sell. This includes Lincolns and Hamiltons as well as savings and checking deposits and shares of money-market mutual funds. Short-term certificates of deposit and U.S. Treasury bills (those maturing within 90 days) also count. The bedrock assumption is that if you invest $1 in any of these forms, your investment is worth $1 anytime, no q
