Building an appropriate liquidity strategy

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” - Robert G. Allen

In a climate where Central Bank rates have been on the rise since December 2021, the appeal of cash as a significant component of investment portfolios has re-emerged. Interestingly, a recent eToro survey places cash as one of the most attractive asset classes right now, surpassing equities, bonds, and even crypto. This surge in popularity brings us to question: Is a heavier cash allocation a prudent strategy for targeting returns?

While cash is undoubtedly a safer and more liquid asset, it’s important to recognise that its role within a portfolio should be balanced. The recent rise in interest rates has increased the appeal of cash holdings, yet an excessive focus on cash can be detrimental. Overweight cash allocations can inhibit capital growth and long-term wealth preservation, particularly as when interest rates decline again inflation could diminish the real returns of cash investments.

So, what's the best move for investors? Balancing the safety and ready availability of cash with the growth potential of other asset classes is key. Investors need to align their asset allocation with their financial goals, investment timeline, and risk tolerance. This balance is crucial in developing a comprehensive financial plan that not only meets liquidity needs but also enhances returns.

At Heligan Wealth Management, we recommend a liquidity strategy that integrates seamlessly into a broader financial plan. This approach takes into account the full spectrum of an investor's assets, crafting a tailored strategy that addresses liquidity needs, return objectives, and risk parameters. Our active cash management service offers bespoke strategies that optimise cash placements across multiple banks and deposit facilities - all managed through a single hub account. This method ensures that returns are maximised within the bounds of agreed-upon liquidity and risk frameworks, keeping your investments both safe and productive.