Cash investments

Cash investments, also called cash equivalents, are short-term investments that earn interest, figured as a percentage of your principal.

One key difference between cash investments and other investments is their liquidity, which means they can be converted to cash quickly and easily with little or no loss of value. For example, if you invest $1,000 in a cash equivalent, you can expect to get $1,000 back, and perhaps some interest as well. If you invest $1,000 in stock, you might be able to sell your shares for more than $1,000, but you might also have to sell for less.

As part of your overall portfolio, cash investments can provide a buffer against fluctuations in the value of your more volatile assets, such as stocks. Keeping a limited amount of your portfolio in cash equivalents also lets you take advantage of new investment opportunities as they arise. And you can use cash investments as part of your emergency fund to cover unexpected expenses.