The Importance of Cash

Read More

The word ‘cash’ has a very different meaning now than it did a few decades ago but it is still a vital part of a financial plan. Cash provides liquidity; that is, money when you need it. Liquidity can take many different forms. It can be notes and coin, bank deposits, credit – such as revolving credit mortgage or a credit card – or a financial asset that can be quickly and easily sold, such as bonus bonds, corporate bonds, or shares. Ideally liquid assets should be available immediately if required, with no cost or risk of loss of value associated with access to the funds.

The various forms of liquidity have different advantages and disadvantages. The choice of how to access cash depends very much on personal circumstances and goals. The most liquid assets are notes and coin and bank call deposits. While they are easily accessible, there is potential physical loss with notes and coin as well as cost, which is the loss of potential interest or investment return on funds which are held in currency or call deposits. Shares offer good liquidity and the potential for investment return, but there is also the potential for investment loss should funds be required at a specific time which may coincide with a drop in the market. Using credit lines for cash is fast and easy but may come with a high interest cost.

The best approach is to have layers of liquidity. That is, have some funds in call accounts, some in short term deposits, a low cost line of credit (revolving mortgage) and other investments. The rule of thumb is to have easy access to three months of living expenses, but you may choose to have either less or more than this depending on your appetite for financial risk.

Related Articles

Economy
Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.