Asset classes

A framework for considering cash in your portfolio

April 16, 2024

On the left part of the figure, the factors are defined as follows: risk tolerance is a measure of how much risk an investor is able to take; time horizon is the length of time until the money is withdrawn from the portfolio; and funding level is the size of the existing portfolio and future contributions planned relative to the goal amount. On the right part of the figure, three rows of sliders, double arrows, labels, and of bull’s-eye circles along the sliders show how the three factors of the framework are applied for Johan and Dana.  An overarching column header sits above the rows of sliders. It is in the shape of a double arrow and is labeled “Cash LESS likely to be beneficial,” on the left and “Cash MORE likely to be beneficial” on the right.  Below this header are the three sliders, given in the same order that as the definitions that appear to on the left part of the figure: risk tolerance (top row), time horizon (middle row), and funding level (bottom row). For the risk tolerance slider, the double arrow above it is labeled “More risk-tolerant” on the left tip, “Less risk-tolerant” on the right.  The double arrow above the time horizon row is labeled “Longer horizon” on the left, “Shorter horizon” on the right. The double arrow above the funding level slider is labeled “Underfunded” on the left, “Well-funded” on the right. Each slider represents one factor and shows two bull’s-eyes, one representing Johan and one representing Dana. For Johan, the bull’s-eyes appear closer to the “More” side on the risk tolerance slider, slightly to the left of the midpoint on the time horizon slider, and extremely close to the “Underfunded” side on the funding level slider. For Dana, the bull’s-eyes appear much closer to the “Less risk-tolerant” side on the risk tolerance slider, very close to the “Shorter horizon” side on the time horizon slider, and about two-thirds of the way toward the “well-funded” side on the funding level slider.


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