If you’ve been with Betterment for a while, you know that we think cash is a silly place for most of your money over the long term. Cash in a savings account might feel safe, but eventually you will lose out with inflation risk and zero returns on your money.

Of course, you need to have a checking account with enough for your cash flow, and then a little more for a sudden emergency. But other than that,we believe you can invest for everything else—including your Safety Net fund.

Still, there is a role for a cash-like asset in a diversified portfolio. The most conservative asset in our portfolio is an ETF with short-term Treasuries (SHV), which behaves like cash in terms of risk and reward.

We use it to do two things:

  1. Reduce risk, especially with goals with a very short-time horizon until their target date (e.g., less than three years).
  2. Provide an option for investors who want to have near-zero risk allocation temporarily for a portion of their investments.

investment cash

What is Cash?

If you’re new to investing, there are a couple different ways to think about cash and investing. Cash has no volatility—it’s not invested in the market and its nominal value never changes. On one hand, that means it’s safe from market drawdown—but on the other, it never has any upside when the markets rise (historically, stock markets rise over the long term).

However, there are a couple of different ways it can be used for your money management and investing strategy.

Cash Savings Account: This is typically an account with a bank, and it currently has an average interest return of 0.09%. This account is liquid and is insured by the Federal Deposit Insurance Corporation (FDIC) when it’s in a bank account, but once it’s in your hand there is little you can do about material loss. (In other words, if you have money under your mattress or in a safe—once it’s gone, it’s gone.)

Best use for investors: Used in conjunction with a checking account, your savings account might contain a small amount of money to cover checking overages or other small emergencies. This is not an advisable place to save money for a long period of time.

Money Market Accounts (MMAs): MMAs generally have a slightly higher interest rate return than a cash savings account, but they also tend to have a higher minimum balance and fees and/or limits associated with accessing money. Restrictions on withdrawals make these slightly less liquid than a cash savings account. Don’t confuse MMAs with money market funds, which are invested and can potentially lose value. With an MMA, $1 is $1.

Best use for investors: MMAs are sometimes used as a short-term parking place for a large sum of money while it’s transitioning from one account to another. These are not advisable for growing wealth in real terms.

Short-Term Treasuries: When we say ‘cash’ at Betterment, we’re referring to short-maturity U.S. Treasury bonds. We use an ETF with the ticker name SHV, which tracks the investment results of an index composed of U.S. Treasury bonds with remaining maturities between one month and one year. This asset is attractive because it has an extremely low interest rate risk and almost no credit risk—which means near-zero volatility. That gives it a cash-like safety in a diversified portfolio.  It is slightly less liquid than a cash account in that it takes approximately four to five business days to withdraw invested money from a Betterment account.

Best use for investors: Available as an ETF, short-term Treasuries can seamlessly provide a cash-like asset in a multi-asset portfolio. We don’t advise investing in this asset on its own, or for more than three years at all, but rather using it in combination with other bond funds to achieve optimum risk and return.

What Primary Risk
The cash in your wallet Inflation; material loss
The cash on your debit card or travelers’ checks Inflation; material loss
The cash in your savings account Inflation
Money market account Inflation, manager risk, credit and interest rate risk
Short-term Treasuries (SHV) Limited interest rate risk

How Does Cash Work in My Betterment Account?

In a Betterment account, we diversify your money across multiple asset classes. For investment goals with very short-term horizons (less than three years), we use SHV to manage your risk. We recommend increasing amounts of SHV to your portfolio as it gets closer and closer to your goal.

Cash Allocation by Term

Cash defined as Short-Term Treasuries


Learn more about our portfolio.

While we never recommend an allocation made up entirely of SHV (which would not be much different than having your money in a cash savings account), you are always in the driver’s seat of your account—and you set the dial. Even when the markets go on a roller coaster, our advice for a downturn is stay the course for your long-term goals.

However, if for any reason, you want to move some of your money to investment cash or need a low-risk investment portfolio, that option is available. To help you carefully consider that decision, our Tax Impact Preview feature can show you the tax consequences of selling equities to move to a more conservative allocation.

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