Liquidity Management

For many investors with significant cash, capital preservation is essential. The key to successful liquidity management? Effectively navigating the trade-offs between stability, liquidity, and yield based on time horizon.

Navigating the liquidity landscape

Learn about the different aspects to consider in a liquidity management strategy and how Schwab Asset Management helps advisors navigate the trade-offs and various offerings.

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Managing cash and highly liquid securities may seem simple. After all, liquidity is fundamental to many portfolios.

However, navigating these liquid investments on your own can quickly become complicated.

For investors who want to pursue income on these assets, it’s easy to aim too high, stretching for yield and potentially taking on too much risk. But aim too low or too conservatively, and the investment could miss its return goals.

There are also other factors to consider—from investors’ unique time horizons, risk tolerance, and cash needs, to volatile interest rates and unforeseen market conditions.

When trying to navigate so many variables, it can be helpful to have a guiding hand.

Schwab’s holistic approach to liquidity management can help balance opportunities, trade-offs, and the complexities of short-term investments. Experienced Schwab professionals partner with investors to help determine their current and potential future cash needs.
Our approach categorizes liquidity needs into three tiers: transactional, strategic, and opportunistic.

Each is designed to address client goals consistent with their established time horizon.

The transactional tier focuses on short-term stability and liquidity with frequent cash flows. It typically has a horizon of overnight to 3 months.

The strategic tier can be used to potentially earn a higher yield with investments that help to preserve principal. The time horizon is typically 3 to 12 months.

The opportunistic tier could be appropriate for liquidity needs that are longer term, typically 12 to 24 months. These investments may offer higher yields, but with somewhat less liquidity and greater volatility.

By providing the framework and tools needed to make decisions with clarity, Schwab’s approach can help prepare investors for the challenges ahead.

With the right guide, liquidity management can feel straightforward and achievable. Partner with Schwab to help optimize cash and liquidity allocations and build a more customized portfolio that works to meet investors’ goals.

Information provided herein is for general information purposes only. Neither Schwab Asset Management® products and strategies nor third-party products and strategies presented for consideration are investment advice or recommendations, but are intended to provide Schwab Advice representatives with additional information and tools to use in client discussions. Schwab Advice representatives, and not Schwab Asset Management, Charles Schwab Investment Advisory, nor the Liquidity Solutions Team are responsible for any investment recommendations or advice provided to the client based on his or her own particular situation.

Our approach

All clients have unique liquidity needs. Capital preservation is often the main priority, and secondary is balancing the trade-offs between stability, liquidity, and yield. However, not all liquidity management solutions are the same and each comes with a varied level of risk and yield. To help navigate the trade-offs and various offerings, we employ a three-tiered cash segmentation strategy designed to address client goals based on time horizon.

Transactional

Also referred to as everyday or operational cash, transactional cash is often used to purchase investments, pay bills, and manage daily expenses. Cash in this tier seeks stability, minimal volatility, and liquidity with frequent cash flows, and is short term—typically overnight to one month.

Strategic

Not needed for day-to-day cash requirements, strategic cash is also called savings and investment cash. It can be used to potentially earn a higher yield with investments that help to preserve principal while retaining easy, though potentially more limited, access to funds. The focus is on seeking stability/liquidity and yield with moderate cash flows and modest volatility. The time horizon is typically 1 to 12 months.

Opportunistic

For cash that can be invested for a longer term, the opportunistic tier is used to explore market opportunities that may be available further out on the yield curve. Stability and liquidity are weighed against these market opportunities, with the potential for higher yield but significantly less liquidity. These investments typically experience the highest volatility of the three tiers and typically have a target horizon of 12 to 24 months.

Compare solutions

	Transactional	Strategic	Opportunistic
Time Horizon	Short term, typically overnight to 1 month	Short to intermediate term, typically 1 to 12 months	Longer term, typically 12 months or longer
Focus	Seeks stability and liquidity	Seeks stability, liquidity, and yield	Potential for higher yield
Cash Flows	Frequent	Moderate	Less frequent
Options	Bank Sweep and Schwab One Interest Checking accounts offered through Schwab Bank	Schwab Money Funds Certificates of Deposit from Schwab CD OneSource Fixed Income Investments	Schwab Managed Account Services™ Wasmer Schroeder™ Strategies

Bank Sweep deposits are held at one or more FDIC-insured Program Banks. Please review the Cash Features Program Disclosure Statement for a list of the Program Banks.

What we offer

Charles Schwab’s team of financial professionals has extensive knowledge of liquidity solutions. We are a resource to help advisors and their clients navigate the complexities of liquidity management through a detailed approach based on the client’s unique needs and available investment options.