I love Cash!

Not only is it interesting to look at from an artistic perspective, but if you think about how it works from an abstract viewpoint it’s pretty fascinating too.  Abstractly, it’s all about believe of value in a piece of paper.  Without believe, cash is just worth the paper it’s printed on…

As much as I love cash, I only keep a small portion of my wealth in the bank as the famous greenbacks.  Currently, in such a stock market roller-coaster riding times, you might be wondering why?

Here’s why:

1. The US has debt issues, and of the two realistic solutions (raising taxes and inflation), inflation is the most likely too occur.  How does the government make inflation occur,?  Well, on way would be that the government prints money to cover it’s debt, which in turn lowers that value of it.  Inflation hits all social classes, both rich and poor should hate inflation, at least high single and double digit inflation rates.
2. Cash is like a depreciating asset (at least so far it has been).  The historical inflation rate per year has been 3%.  That means that every year your plain cash loses the amount that it can purchase by 3%.  To me, this is the same as the value of cash depreciated by 3%.  Granted the value of cash (hopefully) will never be totally worthless, it will decrease in value as long as inflation exists.
3. The value of Cash is a belief.  Without believe it’s just fancy paper with a number on it!  If a system starts to lose belief in the money, or if it’s abused by poor government policies, the value of cash can drop like a stone in a pond.  In the past, this was one of the reasons certain unstable countries actually preferred receiving US dollars instead of their own currency.  Another great example would be the US South’s Confederacy money that existed during the civil war times.

Geez, reading my three points above, you’d think that I hate cash…  This isn’t so, at least over the short term!  Cash/Money definitely has a place in your financial portfolio!  But please realize that it’s not the ultra safe investment that many people make it out to seem.  That said, I always have some cash in my investment portfolio (obviously, I have cash in a checking account in the bank for expenses).  Having cash on the side means that I can jump in when the stock market is very low or the stock market has an extraordinary dip (like it has lately)!

So what do I hold instead of only Cash?

I keep a diversified portfolio of different types of asset class investments.  Admittedly, mostly in stocks, mutual fund and ETFs, but as I become more wealthy, I will invest in broader type of asset classes, much like my richer friends do.  However, right now I’m not to the level were I can settle for a lower but safer rate of return.

Do you hold a broad mix of investments in addition to cash?  Where do you keep the bulk of your wealth?

MR