Generate income on your extra cash

A recent rapid decline in its money supply highlights deflationary concerns in China. The GDP deflator, a broad, inflation-adjusted measure of economic output, has been negative for five consecutive quarters. Judging by recent experiences in the United States and Japan, China will be challenged in its efforts to lift barely positive consumer inflation closer to the People’s Bank of China’s 3% target.

Implementing an investment strategy is often presented as a choice based on whether a fund is labeled “active” or “index.” Those labels are important, as they convey pertinent information about funds. However, I believe it’s more important that investors consider the characteristics behind those labels. Doing so can strengthen investors’ conviction about why they might include active and index funds in their investment plan and can increase their chances of success.

In this research note, we outline three aspects of cash that investors’ objectives tend to align to: returns, relation to inflation, and volatility levels. We also share our framework for assisting investors in considering cash for financial planning and strategic asset allocation.