CACHING THE CASH

Ignoring advisers, many $tash away

So your stock portfolio is down more than 10 percent since the summer started. What are you going to do?

Your financial adviser or broker will tell you to stay in the markets for the long haul. But now, after seeing your losses, the volatility is churning your stomach.

The constant debates and headlines over interestrate hikes and economic crises overseas have many investors heading for the door.

But what about tonight’s sleep? Will you be able to close your eyes, not worrying what is going on in Asian markets?

Wall Street will come at you with a chorus of boos if you want to move your money out of the markets in the short term.

That’s because, unlike stocks and bonds that provide healthy longterm rates of return, cash in savings and checking accounts has been earning next to nothing, investment pros stress.

“Cash is not a good investment. After taxes, inflation and its current expected return (zero), you are actually losing money when you hold cash in your investment portfolio,” according to Dan Egan, director of behavioral finance and investments for money manager Betterment.

Egan says cash is appropriate for those with very short investment spans — a year or less. However, he adds, cash as a longterm investment is the wrong choice.

“While a small portion of cash — for example an allocation of 6 percent — may seem like an insignificant amount, it still can have a significant drag on returns. This is especially true for a longterm investor who should be in a highstock allocation,” Egan adds.

“Cash is not an investment,” says Heather Pelant, managing director and US head of personal investing at money manager BlackRock.

BlackRock, in its latest investor survey, found many investors don’t care what the pros think.

Fourfifths of Americans express confidence that their investment portfolio has the right asset allocation and investments to help them achieve their financial goals, the survey reported.

However, “as was true in our 2013 survey,” BlackRock wrote, cash remains king, “with almost twothirds of all savings and investments held in cash, and most of that in traditional checking and savings accounts.”

Pelant says most investment plans should have a maximum of 10 percent in cash. Still, the cashisgreat sentiments of those surveyed by BlackRock reinforce the recent findings of the Bank of America Merrill Lynch Fund Manager Survey.

It found cash levels soaring to the “highest level since the 2008 crisis — 5.5 percent of portfolios.”

Investors have “raised their holdings of cash significantly in response to a weaker global economic outlook, particularly in China,” said the BofA Merrill Lynch study.