

Q: If clinging to cash is a "loser's game," where are investors supposed to put their money?

A: Clinging to cash has been very expensive. Not only have cash hoarders missed out on powerful bond and stock rallies, their purchasing power has been eroded by inflation and low interest rates.

While it's easy to see that cash has been a bad place to be for more than a decade, the tougher question to answer is what are the alternatives to cash?


Investors looking for safety from volatility or from uncertainty with the bond market have very few options. The moves by the Federal Reserve to repair the economy by keeping interest rates low puts a big burden on savers, while benefiting investors and debtors.

Investors who cannot afford to lose any principal, be it to pay for bills coming due or within a year or two, have few better options to cash. All investors should have at least three months of their living expenses in cash, if not more.

But at the same time, hoarding cash is simply becoming too expensive. With cash that's not needed for a longer period of time, investors may consider alternatives including corporate debt issued by high-quality companies, preferred stock, real-estate investment trusts, master limited partnerships and shares of dividend paying stocks. All these alternatives generate better returns than cash, but they're much riskier, too.