For years, people like my friend Jim and his father sank their money into cash-equivalent investments, also known as liquid assets, because of how easily they could be traded in for cash. (If you need a visual aid, just think of how easily liquids pour from one container to another.) What would you guess they made on these ultrasafe investments that they could so easily jump back out of? You guessed it: not much.
The return you receive on your cash-equivalent investment depends entirely on the existing interest rate. If interest rates are low (a good thing if you’re trying to borrow money), you’re not going to make as much. In any case, you’re not going to see a great return with these investments. They are essentially where you park either money you’re planning to use in the near future, or your emergency reserve. What kinds of investments are appropriate for this emergency reserve category?