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Hidden Cash In Portfolio Hampers Returns: What Clients Are Doing – Part 2

Michael Gault

24 April 2023

This is the second part of a series examining what HNW investors should do with cash, and what the risks are of not realizing how much cash one might have in a portfolio. See the previous article here. The author is Michael Gault, head of Expert Services at Mirador. The editors are pleased to share these insights and invite responses. The usual disclaimers apply. Email

As with any investment decision, consideration for liquidity is one of many variables driving allocation – but it is a vital variable, nonetheless. Once hidden cash within a portfolio has been discovered, the wealth manager and their client need to consider the original reason why hidden cash was lingering in the first place. Sometimes preserving liquidity continues to be the dominating factor in allocating. At other times, it is less important. 

From our perspective, the most common hybrid approach we have seen clients implement is reallocating their hidden cash to higher-interest cash instruments that still preserve liquidity but deliver much better results than cash sitting idle. Allocations to these cash instruments can be safe, liquid and have a minimal potential change in value. This limited category includes money market accounts, certificates of deposit, Treasury Bills, and select high-quality short-term bonds. Anything else tends to have too much risk to be considered a true cash instrument. 

Short-term bond strategies like Treasury bills or government agency bonds can offer the triple benefit of high liquidity, minimal risk, and exemption from state and local taxes. For the near term, Treasury bills yielding upward of 5 per cent, with low risk and exempt from state and local income taxes, are still tough to beat.

Recently, certain securities that are considered low-risk have started yielding higher returns compared with a traditional 60/40 mix of stocks and bonds. The yield on six-month US Treasury bills, which is generally regarded as a risk-free investment, has exceeded the yield of 5.07 per cent on a balanced portfolio comprising US equities and fixed-income securities, based on the earnings yield of the S&P 500 Index and the Bloomberg US Agg Index of bonds – the most since 2007. This trend marks a significant departure from the past two decades, highlighting how the Federal Reserve's current monetary tightening has increased interest rates on short-term Treasuries that are being used as a benchmark in global financial markets. This leaves ample opportunity for investors with the right strategy. 

And while Treasury Bills or government agency bonds are popular investment options for excess cash, depending on the investor's liquidity requirements, mortgage-backed securities and certain other long-term bonds may offer better returns and be viable alternatives.

If you aim to maximize your returns while minimizing risk, it's best to seek assistance from an independent financial advisor who possesses specialized knowledge and expertise in the debt markets, which enables them to provide superior levels of service. As independent agents, they have the capability to source bonds from bond auctions or their broad network of dealers. This gives them an edge over brokers, who are often limited by their firm's restricted and costly inventory. 

In summary, the current economic climate, characterized by increased uncertainty and higher interest rates, presents an excellent opportunity for UHNW investors to earn better returns on their hidden cash without incurring significant additional risk. To begin with, family offices and UHNW wealth advisors should implement comprehensive liquidity reporting to gain a clear understanding of their entire portfolio. After that, they should partner with an experienced and independent financial advisor to identify the best short-term cash instruments that align with the portfolio's long-term objectives and enable them to earn higher returns.