
Where do you keep your cash reserves? - akrai
Hi! I’ve been curious about this for a while now, and have spent quite a bit of time reading research reports about it. After pouring through statistics and studies, I’ve decided to ask some entrepreneurs directly for input. So, here it goes. As an emerging business, where do you keep your cash reserves? In a bank savings account, in a money market fund, invested in equities (I imagine this is for larger businesses holding the reserves for longer periods of time), or somewhere else?
======
greenyoda
Equities don't seem to be a good place for cash reserves. If you want to be
able to plan future hires or purchases for your business based on how much
money you have available, putting your money in an investment that can lose
substantial value in a short period of time doesn't seem like a smart thing to
do. A stock market crash can happen pretty quickly.

Owning a business is a risky enough investment, so you don't want to compound
the risk it by investing your cash reserves in someone else's businesses.

The same is true for individuals. You don't want to put the money for your
kid's next-year's college tuition into stocks. You're going to need to have
that money available whether the market goes up or down this year. Stocks are
a good investment vehicle for the long-term, but risky in the short-term.

~~~
akrai
That’s very true. Thanks for the great input! Do you think it would be better
for businesses to invest in money market funds or other reputable bonds then?

~~~
greenyoda
Bonds can also fluctuate in value over the short term. If you hold a bond to
maturity, you're guaranteed to get your principal (original investment) and
interest back (unless the bond issuer goes bankrupt). But if you need to use
that money in the meantime, you'll need to sell your bonds at whatever the
current market price is, which may be higher or lower than what you paid to
buy them. If you buy very short-term bonds, like 4-week Treasury bills, this
risk is minimized.

I think that investments that have a stable value, such as bank accounts and
money market funds, are the safest choice for cash reserves. They're also
convenient, since you can transfer money easily between these accounts and
your business checking account.

~~~
akrai
Agreed. This was what I was thinking too. I’m curious, how many businesses
actually put their money in a money market fund as opposed to a checking or
savings account?

