Cash and cash equivalents comprise several different types of assets. These assets earn money through interest and are often considered the safest mode of investing. RBC Centura offers that cash equivalents are “any highly secure financial asset that is liquid, i.e. can be readily converted into cash.” RBC Centura claims that cash and cash equivalents should be a substantial part of your portfolio. This will keep your portfolio secure and help maintain financial balance.

Types Of Cash Equivalents

There are multiple different types of cash equivalents of which investors can take advantage. These include treasury bills, commercial paper, CDs, and bankers acceptances as well as money markets. There are also savings and checking accounts to be considered. Within these types, it important to determine which cash equivalent is best for you. RBC Centura claims the more liquid the investments are the higher the potential return. For example, cash that is in the bank earns the least while Guaranteed Investment Contracts, used for long-term investments, offer the most earning potential.

Advantages

There are several different advantages to choosing cash as an investment asset. These include regular income, relative price stability, and liquidity. Also, the risk involved in using cash and cash equities as assets is incredibly low. Evergreen Investments states that liquidity is "the ability of a company to fund or convert assets into cash without significant loss. Usually this is accomplished by having a large number of shares outstanding, so large transactions would not cause a substantial drop in price."

Disadvantages

While the risks of investing in cash and cash equivalents are very low, there's also not a great chance of an exceptionally high return. Stocks and bonds offer a much higher chance of a greater return, but offer these with a higher risk. In the end, most investors would recommend having both high-risk and low-risk assets in your portfolio to maintain financial stability.