Cash is the worst..and best asset

It’s common knowledge that cash produces the worst return over the long-term compared to shares, property and bonds. By long-term I mean a minimum of 10 years.

Generating long-term returns is extremely important because otherwise your money will slowly become worth less over time due to inflation.

Saving all your money in cash is not going to you mega wealthy. At the moment the best savings interest rate offered by banks is somewhere between 2% to 3%, depending on the bank.

But, cash is also extremely useful. During the GFC the value of the big bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) fell by than 50%. Obviously, the value of cash doesn’t fall if there’s a stock market crash.

Cash can offer protection for your portfolio so that it doesn’t drop as much as it may have. The key part is that to take advantage of damaged share prices you need cash on hand to actually buy more shares.

I’m not advocating that 50% of your portfolio should be cash, but keeping a bit aside in-case there are opportunities could be a good strategy. I think it’s telling that some of Australia’s best investors are increasing their cash positions at the moment.

For example, WAM Capital Limited (ASX: WAM) increased its cash position to 33.1% at the end of April and Magellan Global Trust (ASX: MGG) had 23% of its portfolio as cash at the end of March.

Foolish takeaway

I believe it is a prudent move to start building up cash at this point in the cycle, although I’m not selling any stock specifically in mind of “timing the market”. It’s extremely likely that there will be another major market dip at some point – crashes average out to roughly once every 10 years.

When that market crash comes, I’ll want to pick up these quality shares at bargain prices.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.