Maximising Your Cash
Key Takeaways
Money market instruments offer a relatively low-risk way to enhance the yield on your cash holdings.
They have no required duration unlike other traditional fixed income instruments and as of this September this year, provide one of, if not the most, favourable returns for your cash holdings.
The art is not in making money but in keeping it.
— Proverb
Most financial plans involve the individual or family having to invest their savings over a period of time. This is done so they can achieve an amount which helps them meet their goal. But investment returns is only half the battle — having a good savings program is important. So the lesson of saving diligently — something that we’ve been taught from a young age — is the right concept. However, sometimes we build up a sizeable amount of cash, either getting too comfortable with it, or fall into the trap of a hoarding mindset. Sometimes, having excess cash can be a problem.
Holding cash can give many peace of mind, giving them access to options, providing a margin of safety. However, it is less than ideal for a long-term holding, especially in a current account or a savings account, where you need to meet many conditions. And of course, holding cash will mean that you certainly will lose to inflation over time.
There are many websites or books that offer cookie-cutter advice, but here are a few practical ways to think about how you should go about managing your cash.
What are your own unique circumstances?
The problem with generic advice is that the well-meaning person or advisor likely does not know your own unique situation. Reading about how some investment guru is hoarding cash now does not necessarily translate to you. Perhaps they intend to buy a building or a company and needs the liquidity. Additionally, they probably still have a few billion dollars still invested in the market somewhere to cater for their own financial plan. It’s unlikely anyone has the exact same issues or problem, therefore, you’ll need to think about your problems from your personal perspective.
What is your time horizon for this cash?
Whenever you are thinking of allocating capital or splitting it up into the various buckets, you need to relate it to your own circumstance and timeline. It can sometimes be easy to get muddled up with other people’s goals or the advice or opinions of from your well-meaning friends or family.
Ultimately, there is no right or wrong answer to the exact amount of cash to ideally hold, and it is inevitable that most of us would have a cash hoard of some sort to meet daily expenses, emergency spending, or perhaps you are awaiting for a suitable time to deploy that capital.
For most people, they are familiar with the traditional fixed deposit at the bank or Singapore Savings Bonds as a way to get a higher yield. A less known alternative are Money market instruments; they offer another relatively low-risk way to enhance the yield on your cash holdings.
The image below shows the risk return relationship of the various types of fixed income instruments available to investors and breaks down the differences between them:
As you can see, while money market funds are not capital guaranteed, they sit in the very low-risk bucket amongst other fixed income instruments. In addition, the flexibility and liquidity of money market instruments gives it an edge over the other securities which are capital guaranteed.
So maximise your cash yield with our Capital Holding Account, while waiting to deploy your investments or simply utilise it as a short-term parking facility.
For more details about the terms and conditions of the Capital Holding Account, speak to your advisor or simply contact us.
