Cash is a low-yielding asset but has other virtues

EVER HAD the feeling that there is a party somewhere that you’re not invited to? It is the same feeling investors have when they have capital sitting in three-month bills or on deposit at a bank. Cash is a safe asset, but a wasting one. The real returns on risky assets have been much greater. True, cash affords options—to buy cheaply when others are selling. But episodes of distressed selling have been fleeting, largely thanks to central banks, which have been liberal in supplying cash in emergencies. Why then should investors incur the opportunity cost of holding it?In its favour, cash is at least now offering a small return, or the prospect of one. Overnight interest rates have risen, notably in Latin America and Eastern Europe. The Bank of England may raise its benchmark interest rate before the year is out. The Federal Reserve may follow at some time next year. But the rate of return in short-term money markets is still below the rate of inflation and is forecast to stay that way. For those seeking returns, holding cash remains a loss-making prospect in real terms.