subject: Certificates Of Deposit Provide a Good Use for an Investor's Cash [print this page] Certificates Of Deposit Provide a Good Use for an Investor's Cash
For most investors, there are three main categories of investments: stocks, bonds, or cash equivalents. These different asset classes are important pieces of a well-diversified investment portfolio. While there have been many discussions about the proper investment strategies behind stock and bond allocation and the proper asset
allocation mix, there has been very little emphasis placed on what investors should do with the cash portion of their portfolios. In many cases, the cash portion of investment portfolios can be invested in a certificate of deposit
Having a mixture of stocks, bonds, and cash in an investment portfolio protects the investor from being the victim of severe market swings. An asset allocation comprised of a mix of these three types of assets will help smooth out the financial market's fluctuations. But, where should an investor place his or her cash
position? A savings account provides liquidity and easy access to the funds, but current interest rates have not kept up with inflation making a savings account a less than desirable option to many investors. Another option for investors is to place their cash reserves in a certificate of deposit which will earn a higher rate of return than a simple savings account while still offering capital preservation.
Certificates of deposit can provide an investor with a higher rate of return on his or her cash instead of having that asset simply languish in a bank account. Having cash as part of a total portfolio strategy not only gives an investor a safety net, but it also allows the investor to quickly allocate capital should a new investing opportunity present itself. Certificates of deposit can fill this liquidity need as well by allowing the investor to choose from many different timeframe options.
While cash is an integral part of a diversification strategy for any investment portfolio, there is no reason that the asset should just sit idly by without being productive. Investors can still have the safety, diversification, and liquidity of cash in their portfolio with the cash equivalent investment of a certificate of deposit. Certificates of deposit offer investors a lot of flexibility while also providing safety and an increased rate of return rather than using a simple bank account.
