Saving for a rainy day is smart, for sure. But it’s been “raining” for years in this economy and companies are still socking away cash. Is it still the best idea?
It all depends on what kind of company you are.
First of all, know that you’re in the majority if your company’s investment strategy continues to be short term and safe.
And there’s no end in sight. In fact, a full 43% of companies had larger cash and short-term investments this past May than they did six months prior. That’s according to a new survey out from the Association for Financial Professionals. And three in ten say they’re going to increase those reserves even further in the six months to come.
It’s not an isolated incident. Those findings are in line with Fed’s discovery that corporate cash holdings are at their highest since 1963.
The top three investment vehicles right now, according to the AFP survey:
- bank deposits
- money market mutual funds, and
- U.S. Treasury securities.
Who may need to shift gears, who can hold tight
While few can find fault with a conservative investment strategy, especially in these times, there may be some folks getting restless with the low yields that accompany them.
So who can hold the line and who may need to start making some new moves?
- Sit tight: Companies with a plan. One of the best parts of the cash-heavy investment strategy? When your company is ready to make a move, it can do so quickly. So if you have a larger plan in mind for the company’s cash, sitting tight for now will have you well positioned to execute.
- Prepare to answer some questions: Companies with investors. While there are certainly upsides to playing it safe, investors are going want to see some bigger returns sooner rather than later. So don’t be surprised if they don’t start requesting their money starts getting pumped back into the business … or gets returned to them. It may not happen right away. But with all this news about gigantic corporate cash reserves, it’s understandable that people with their own cash at stake may start to raised the issue.
Go here for the entire liquidity survey.
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Tags: bank deposits, cash, economy, investment strategy, investors, reserves, short-term investments
July 9th, 2010 at 11:14 am
One major reason no one is spending money is because anti-business legislation is rampant. That money may be needed to comply with some new stupid Federal edict . Also the Federal debt is undermining the entire economy. Nobody in Washington has any economic sense or grasp of what is happening outside Washington. Until they do, it is not surprising businesses hang on to their cash. Wouldn’t you if you were able to do so?