When investing in cash consider the following factors:

• Default risk 

• Short-term financial goals

• Return on investment

• Inflation

• Purchasing power

When investing you should consider default risk—the risk that the financial institution or creditor with whom you are invested is able to make timely payments on your asset. Cash investments have low default risk and are secure liquid investments that help achieve short-term financial goals.

Another factor to consider is your return on investment. Although they are very low risk, cash investments produce the lowest returns over the long-term, compared to other financial options, because they do not adjust to inflation— the rise in prices for goods and services. As a result, cash investments limit your purchasing power over a long period of time. Historically, some items such as college costs and certain medical expenses increase at a much faster rate than the average rate of inflation.

When developing your financial plan, you should take into consideration your short and long-term financial goals.

Since your purchasing power can be affected by unpredictable inflation and interest rates in the long term, a sound investment strategy should include investments that protect against inflation—cash investments may not be suited for long-term financial goals.