Investment portfolios primarily contribute to which form of the money supply?

Investment portfolios primarily contribute to M2, which is a measure of the money supply that includes all elements of M1 (such as cash and checking deposits) plus savings accounts, time deposits, and other near-money assets that are not as liquid as those in M1. M2 is important because it reflects the money used for day-to-day transactions along with the liquid assets that can be easily converted into cash.

Investments, such as those in mutual funds or similar portfolios, are typically considered part of M2 because while they may not be as easily accessible as cash, they can be relatively quickly liquidated into cash or checking account equivalents. This makes M2 a more appropriate categorization for portfolios then M1, M3, or M0.

M3 includes larger liquid assets and is no longer published by the Federal Reserve, while M0 refers to the total of all physical currency in circulation. Therefore, the involvement of investment portfolios aligns with the characteristics of M2 as it encompasses a broader definition of liquid assets than those found in M1 or composed only of physical cash like M0.