What are cash alternatives?

Cash alternatives refer to investments that can be quickly converted into cash while maintaining a relatively low level of risk. This category typically includes instruments such as money market funds, Treasury bills, and other short-term securities. These investments provide liquidity, meaning they can be accessed quickly in case of emergencies or for immediate financial needs. Their main advantage lies in offering a safer alternative to holding large sums of cash, while still providing the potential for slight returns.

Long-term investments with high risks do not qualify as cash alternatives because they are not readily liquid and usually involve significant market fluctuations. Luxury items cannot be reliably considered cash alternatives since their resale value can fluctuate greatly and may take time to sell. Additionally, real estate properties often require ongoing maintenance and are illiquid, meaning they cannot be quickly converted to cash in a pinch. Thus, the option indicating short-term investments that are quickly convertible into cash accurately encapsulates the essence of cash alternatives.