Cash Matters

Q Is it good to see a lot of cash on a company's balance sheet?

— N.B., Dalton, Ga.

A It depends. Firms with gobs of cash can act quickly when opportunities arise. But many successful companies purposefully maintain cash balances near zero. They use their money to buy back shares (essentially retiring them) and acquire other companies, among other things. If they suddenly need some cash, they draw on lines of credit.

You might be surprised at just how much cash some companies have in their coffers. As of December 2008, for example, General Electric had more than $48 billion in cash and cash equivalents. Around the same time, ExxonMobil, Wal-Mart, McDonald's and Home Depot had around $30 billion, $7 billion, $2 billion and $500 million, respectively. Different companies manage their cash in different ways, with varying degrees of success.

Q I'm saving to buy my first home within three years. How should I invest the money in order to get the maximum return on it?

— D.C., Muskegon, Mich.

A Well, the stock market is often best for long-term investment appreciation, but it should be off-limits. In the short run, the stock market can go up — or down, as 2008 reminded us. In the long run, it has averaged about 10 percent per year, but even that's an average, not a guarantee.

Don't risk money you'll need within three to five (or even seven) years in stocks, or you may end up able to afford only a corrugated aluminum shack. Short-term scratch should be kept in a safe place, such as CDs or money market funds, to protect your principal. Learn more about shortterm savings at www.fool.com/savings and www.bankrate.com.

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