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How to Make Cash Investments Work for You

How to Make Cash Investments Work for You

| November 28, 2023

Investors have numerous options for making and saving money. While it’s always best to have a mix of assets whenever possible, many people find cash investments (also known as cash equivalents) to be worthy, low-risk options for preserving capital and taking care of short-term objectives.

Learn more about cash investments and how you can take advantage of them to shore up your financial health.

Defining Cash Investments

Cash investments are typified by high liquidity and low risk. They’re generally stable commodities that can easily and quickly be converted into hard cash. Most investors consider them to be best for short-term goals and emergency funds because they’re unlikely to fail and provide instant access to money.

Long-term investment strategies focus on higher-risk investments, as they’re oriented toward growing wealth. While returns tend to be higher with such investments, they can be unsafe in times of extreme market volatility. Cash investments, on the other hand, work to protect one’s capital and provide steady albeit less significant income.

Common Types of Cash Investments

What specific financial instruments are considered cash investments? Here are a few of the most common.

Savings Accounts

Banks and credit unions offer savings accounts for customers to keep their money safe. Some savings accounts allow for moderate gains through interest payments. Most are protected by the government to some extent.

Some financial institutions, especially those focused on online business, offer high-yield savings accounts to customers. Interest rates on high-yield accounts are significantly higher than normal savings vehicles, and fees for high-yield accounts are often lower.

Certificates of Deposit (CDs)

Banks also offer CDs, which usually come with fixed terms. The investor agrees to keep their investment active over a certain length of time, typically six months or one year. This strict requirement is offset by higher interest rates and returns than savings accounts.

Money Market Accounts

A money market account is like a combination of savings accounts and CDs, but it usually offers higher interest rates than either. Money market accounts often have limits on check-writing and debit card use, but returns can be more lucrative.

Some money market investments can be organized as parts of mutual funds. These pool together several low-risk, short-term commodities with the same high liquidity as individual money market securities.

Treasury Bills

Treasury bills, also called “T-bills,” are issued by the government. They’re short-term debt securities set for a particular time, anywhere from a couple of days to an entire year. T-bills are among the safest investment vehicles, and they’re often available for discount prices.

Why Should You Make Cash Investments?

Cash investments are typically favored by the financially conservative. For these individuals, protecting hard-earned capital and mitigating risk is more important than generating revenue. To this end, a cash investment can serve as a kind of shelter in times of market volatility.

Others use cash investments as “holding places” for their capital while they seek other investment opportunities. Not only are the investments protected, but they can earn a little interest revenue as well.

Many short-term accounts and emergency funds avail themselves of cash investments. Investors can easily transfer their holdings into cash when short-term projects or unexpected events arise.

Finally, cash investments are good ways to diversify one’s cash portfolio. Spreading capital across different types of investment vehicles is a simple and prudent way to mitigate investment risks when certain investment categories are in a temporary downturn.

How to Make Cash Investments Work for You

There are many useful tips and strategies that can help everyday investors manage cash investments. Perhaps the most important is to define your financial goals and set up your cash investments to align with those goals.

It’s always a good idea for investors to keep a close watch on prevailing interest rates to gauge how much they can earn. Take a look at options that might provide higher yields compared to other cash investments.

As mentioned, diversifying cash investments is always a strong strategy for lowering risk exposure. It’s also a good idea to reinvest any interest earnings you may gain if you have no immediate, short-term goals you need cash for.

Seek Further Guidance on Cash Investments

It can be tricky to navigate the world of cash investments if you don’t have any previous experience with them.

Fortunately, a qualified financial advisor will know all the avenues and possibilities of cash investments and can craft a strategy to help you take advantage of them and other investments to reinforce your financial health.

Good Life Morehead City is available for precisely this purpose. Contact us today to learn more about cash investments and the role they can play in an effective financial strategy.