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Investment Advice and Planning: Module 2.1 Structure – Cash

Edward Ketterer • March 31, 2021

Whether a crisis or an opportunity cash can provide an immediate remedy or a timely advantage.


The purpose of cash and the holding of cash can be viewed in a variety of ways – whilst for the purpose of a financial plan in this article it is to act as a reserve to meet emergencies it can also be held for more general needs such as transactions, regardless of the purpose of the transaction, and / or to be utilized for investing into unforeseen opportunities.


In the context of where cash belongs in this case it represents financial liquidity and the ability to financially attend to unforeseen events that require cash to be addressed i.e., …. emergencies are the first event that comes to mind along with an immediate replacement income should a source of income i.e., salary, rent, dividends pensions etc.… stop, this could also include damaged property, replacing or fixing broken appliances, vehicle repairs, flat tires … and the list can go on. 


In some cases, I have known a few thousands of dollars to be held to as much as the equivalent of 6 months of income to be held in 10s of thousands of dollars and in other cases over a 100s of thousands of dollars. The base currency for the purpose of this article being U.S. Dollars.
Whilst cash can be utilized to make purchases of goods, services and assets - there are cases, and dependent on the age of the Individual, where some would consider a credit card or an overdraft line of credit as a suitable means of addressing cash needs for emergencies though generally this would not be a recommended course of action due to the cost incurred should full repayment not be done within the designated period as set out by the credit card issuer or where income or funds to pay off the credit card or line of credit are not available.

An important element to holding cash is how it is held to ensure quick and unobstructed access. One historical place, and certainly not necessarily recommended, is inside the proverbial mattress or for some in a lock box / safe at home. Though in this day and age a bank account or money market account with access through an Automatic Teller Machine (ATM) would be deemed more suitable or through an app set up on your mobile phone. Places or structures where cash can be held can also be dependent on when it may be needed or utilized which would be determined by personal preferences.

There are a number of strategies that can be utilized to maximize potential returns on cash without necessarily obstructing access or significantly reducing liquidity. It's best to keep in mind that before investing cash that appropriate advice is sought to identify how cash should be held and its appropriateness to the financial plan being put in place. In Module 3 “Strategy” this will be covered in more detail as we discuss the various strategies that can be applied to a financial plan and investing in general.



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Copyright © Edward Ketterer 2020

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