Cash FAQ
Posted: Mon Apr 26, 2010 1:36 am
The Permanent Portfolio holds 25% of its allocation in Cash. There is no FAQ on it yet, but here's a brief run-down until I get it done:
Q: Why hold cash?
A: Cash provides a buffer during recessions, stability during volatile markets, is a place to park interest, dividends and gains from the other assets and allows investors to ride out tough markets without having to sell down depressed assets.
Q: Where should my cash be invested?
A: The Cash should be in a high-quality US Treasury Money Market Fund.
Q: Why a Treasury Money Market Fund and not something else with better yield?
A: Because you are not looking to take risk with your cash. Treasury Money Market Funds that are properly run are one of the most liquid investments you can own. There are no FDIC limits to worry about, no bank credit worthiness to worry about, and you will always be paid barring some extremely catastrophic event in the country. Chasing yield with your cash means you are taking on more risk and those risks can show up when you least expect (or want) them to.
Q: Doesn't holding so much cash hurt performance?
A: It doesn't in the Permanent Portfolio strategy. Cash is an integral component that works with the other holdings to provide smooth and stable returns. See here:
https://web.archive.org/web/20160324133 ... l-returns/
Q: Why hold cash?
A: Cash provides a buffer during recessions, stability during volatile markets, is a place to park interest, dividends and gains from the other assets and allows investors to ride out tough markets without having to sell down depressed assets.
Q: Where should my cash be invested?
A: The Cash should be in a high-quality US Treasury Money Market Fund.
Q: Why a Treasury Money Market Fund and not something else with better yield?
A: Because you are not looking to take risk with your cash. Treasury Money Market Funds that are properly run are one of the most liquid investments you can own. There are no FDIC limits to worry about, no bank credit worthiness to worry about, and you will always be paid barring some extremely catastrophic event in the country. Chasing yield with your cash means you are taking on more risk and those risks can show up when you least expect (or want) them to.
Q: Doesn't holding so much cash hurt performance?
A: It doesn't in the Permanent Portfolio strategy. Cash is an integral component that works with the other holdings to provide smooth and stable returns. See here:
https://web.archive.org/web/20160324133 ... l-returns/