Cash Is Not Trash – Part I
Times of market and economic uncertainty more often than not present us with opportunities, but in this time of excruciatingly low interest rates parking cash feels like a non investment. It probably is, but it accomplishes two very important things in uncertain markets. Cash in a money market fund or short term bond fund can significantly reduce volatility in an investment account. It also is essential to taking advantage of opportunities that arise in weak markets.
Let’s look at an example of what some might see as a potential opportunity in this beaten up market. The NASDAQ Biotech Index peaked at almost exactly $400 last July. Today it is trading at $261 for a 34.75% decline in 7 months. The index is over 50% weighted to the largest, most well known and profitable biotech companies. Many analysts feel these companies and others in this index are the future of medicine and probably hold the keys to treating our most feared diseases.
The Dow Jones Industrials and the S&P 500 are each down over 10% from their peaks last summer. Nearly 35% off of one of the potentially fastest growing industries may be one good reason to have some cash set aside in our investment accounts.