Is Cash The Losing Asset Everyone Thinks? (Surprising Data)
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- čas přidán 28. 05. 2024
- Have you been told cash is a terrible asset to hold because it loses to inflation annually? This is a common myth, and it might not be the only myth leading to a suboptimal portfolio. You can schedule an appointment with one of our Retirement Experts to look at your situation and help you plan for your future. Call us at (920) 544-0576 or go to www.safeguardinvest.com/contact.
Timestamps:
0:00 Is Cash a Losing Asset?
0:57 A Common Cash Misconception
2:40 The After-Inflation Return on Cash Historically
4:56 Should You Hold a Lot of Cash? No...
6:19 Safe Income Withdrawals Based on Cash and Other Assets
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Got 80% of mine in "cash" Vanguard sweep fund earning 5.27%. I'm happy with that atm until feds start lower rates, then I'll move it. Just way too much up and downs at the moment at my age.
Dude, go buy tbills and agencies and some CDs you'd make another quarter %. Plus you are monitoring it day to day and you see what is happening.
@butopiatoo too much work for quarter percent for me atm. Lot of keeping track and monitoring. I'm good with 5.27 for now:)
@@onlywenilaugh6589 You're not taxed as much on TBills however it is not as liquid for sure
@onlywenilaugh6589 what do you mean too much work?
@@unknowndriver6652 buying and selling tbills over and over, keeping track of when cds expire or they will renew at much lower rate, etc. Simpler just to leave in money market make 5.28% until feds start pivoting for me anyway.
Keep in mind if your paying 7% on a mortgage and getting 5% on a savings account your upside down!
Your 100% in stocks return isn't risk adjusted as compared to 100% in cash. Right now you need to be surfing the inverted yield curve. You're right, eventually you have to be able to capture some of the higher returns of the stock market (or real estate for example) to grow your wealth faster than you are spending it down or that you are losing purchasing power due to inflation. Tricky times. The biggest thing you control after you are no longer making regular income (not investment income or SS) is controlling your expenses. No debt, own your home, live somewhere with no or minimal income/property taxes etc etc. Good luck to us all.
Cash is not cash. Cash under your mattress decreases in value like the chart shown in the beginning. Cash invested in short term bonds, or short-term paper (like ICSH), probably does a good job of roughly keeping up with inflation. It is not a great investment, but for the low-risk part of your portfolio, it is also not a terrible investment. I like sleeping at night and not worrying about the stock part of my portfolio as it needn't affect my spending for the next several years.
Indeed. If fact, rolling 1 year T-Bills going back to 1971 have more than kept up with the official rate of inflation, meaning that you'd be spending power ahead if you'd just done that with your cash. Now, the "official" rate of inflation and how it has been manipulated is another conversation...
I keep about 25% of our assets in cds / mm funds. Helped minimize our exposure to the bond/ equity market. At 64 I don't need the safe assets to do much but allow me to sleep.
Thank you for posting this video. We hold 23% in cash @ 5%, as retirees for two reasons. One, our emergency fund needs to be 12 to 18 months of cash. Two, we anticipate stock buying opportunities and persistent inflation over time. Our overall long-term goal for cash is around 10%. Don't think bonds are coming back any time soon, so we diverted to cash. With a 41.5% burnout rate in our recurring budget, neither cash nor taxes will be a problem until one of us passes away in 15 to 20 years.
the main problem with cash is that with the rising astronomical deficits it can loose 60 to 99% of it's value in the future.
You probably need a bigger emergency fund at least 2-years of cash. That way in a down market you aren't forced to see assets at a loss. That is unless you have some guaranteed income via an annuity, Disability, Pension, SSI, etc...
@@waynv1835 If it gets that bad, no asset class will save you.
With current interest rates, if you're retired, cash ain't bad. I own my home and don't spend that much, so I don't lose sleep over inflation.
The difference between cash and bonds tends to diminish as you get closer to retirement. Stocks though do tend to get more risky as you get closer to retirement with less upside.
It depends on the purpose. I am not putting everything at high risk. I have enough in a money market at 5% to get me to 67. It may under perform the market, but I don't care it solve my issue to get where my annuity and SSA will give me a good base line income.
Yes. "Beating the market" is not a good goal for a retiree.
I’m with you just watch the COL problem…….I found utilities going up 10% per year……not to mention property taxes, food, gas and medical!
@@MM-fh6kpBeen tracking my expense last 13 year, my expenses raise about 10% in total. Collect your own number, retirement planning is very individual.
Why does everybody feel the need to "beat the market"?
If you're interest is meeting your needs, enjoy it. There is no rule saying that you have to take risk.
Remember, every time interest is deposited to your account, that is money you did not have yesterday.
Not sure the idea is to beat the market in retirement, it’s to beat inflation so your nest egg provides the same buying power in 15-20 years as it does now. Cash is not tax efficient in its returns, which makes it harder to beat inflation over time after tax.
We need a sharpe ratio for bonds and cash, where looking at today’s rates on cash and bonds compared to historical norms leads one to lock in longer term rates for better returns. 10 year MYGA at 6% , 30 year tips at 2.15% real returns and many qualified preferreds or baby bonds at 6-7% seem very attractive.
Mostly stock brokers that work on commission and that get money for each trade. The reality is that you don't need to beat the market, even if you just invest in a mixture of foreign and domestic stock and bond index funds, you'll likely make enough over the course of decades to where you'll be able to have a rather lavish lifestyle in retirement.
@@pware9643 I take it you're younger then, that attitude of beating the market was been used in stock broker advertisements for decades. Beating inflation is a definite must, but it's also pretty easy to do in most periods.
Instead of holding cash, I just bought $1 million worth of Forever Stamps. The postage increases are faster than inflation so I make more money that way.
That’s crazy because I sent like 3 letters in the last 3 years
That's brilliant. I'm going to do the same.
Oh wait, I can't remember the last time I sent snail mail. So you might not have a demand for your investment in another 5 years :)
I have one book of stamps and it will probably be the last one I ever need.
Hahaha
Thank you for posting--good job!
Return on cash accounts is heavily taxed every year. It can not keep up with inflation, even with official inflation.
Excellent presentation -- thank you!
Money is not meant to control people rather it is meant to be put to work producing more money for you. You cannot build wealth without putting money in its rightful place...
People don't understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments don't match our income, yet certain investors still earn over $365,000 in stocks and assets. Wish I could accomplish that.
Ahhh-Sooooooo🙆 Grasshopper🙅
...and your bank and fund managers thank you.
Thank you! These types of videos which make us think about our assumptions and practices are great!
Good video and discussion Eric. Larry, Central Valley, Ca.
Holding some SWVXX is a lot less stressful than watching stocks rise and fall
Yes but you can be making another .3 to .5 in treasuries and agencies in a ladder. Not saying zero SWVXX out. SNAXX even better, but grab yield while it’s available. In a ladder with short term small rungs you’re just building your own mutual fund anyway
Put cash in short term investments like T Bills. 1 month, 2 month and 3 month T Bills are yielding over 5% APR and the rate is locked in for the duration of the T Bill. Retirees should have money that they can grab if need be and/or the market goes down and they don't have to sell stocks at a loss. Having a few years of cash equivalents of withdrawals for bad times may be a good move if a person/couple can afford it.
You haven't taken into account the tax payable.
I had over $1m in cash last year in high yield savings which generated $55k of income. The reason was actively looking to move and have enough to pay cash without selling any investments that would throw off tax. We did not buy anything and I have moved half to CDs and T bills/notes and agency bonds paying an average of 5.55%.
What would you do if you have 400k to invest?
2 year T bills are at 5%. If you don’t need the money before that time I like that for half. JP Morgan has an FDIC insured CD for 1 year if 2 years is too long. Both can be bought without fees from Schwab or Fidelity
@keithmachado-pp6fv i was trying to buy a house but i gave up this market is crazy so im gonna look the T bills you just named. Thanks
@@unknowndriver6652IMO, stocks for the most part are way overpriced. You could allocate say 100k in a balanced fund, but a fund holds stocks. I retired just over a year ago, and with my lump sum pension, i bought two BDC's mainly for the dividends, MAIN and ARCC. MAIN pays monthly. That was 10% of the pension. The other 90% are in CD's, on a MONTHLY ladder. Yield's from 5-5.50% from 3 months to out 2 years. Most payout interest monthly, instead of at Maturity. Of course our of that 400k, park 6-12 months worth of living expenses in a emergency fund, aka...savings account.
Inflation is at 3.48% and money market rates at 5.28%. Makes since to keep some cash.
Didn't watch this.
You'll probably see a lot of scam ads like this.
Essentially, no one is investing except a thin sliver, since there is no CASH out there.
So, during times where there is lower monetary circulation, what can you do?
Use cash to advantage your transactions, since everyone charges a private business tax on those without cash.
I have 175 k in laddered CDs at the moment, all at 5 percent. Just extra money that I don't need for anything, when the CD rates fall, will have ro do something else with the money, but for now, very safe, yes after inflation, only making around 2 percent, nothing great I know. Just extra cash.
I am like you at 210k in a MONTHLY ladder of CD's. Basically have a CD maturing every 2 weeks. Just today a 3 month CD matured, and I rolled it into another 3 month CD that pays monthly @5.30%. As of late, short term rates are higher than 1 year or more rates. IMO, rates need to go back up again, as inflation is not nearly tamed. Let's see over 6%, yes??
3 years cash emergency fund in retirement. Basically everything else in SP500.
A slightly different way to look at this from portfolio and risk considerations. You supposedly have some preferred risk level. You can achieve this in your portfolio in any of many ways, but one way is a fairly "dumbbell" (the shape, not the comment about someone's intelligence) distribution consisting of cash plus the riskier end of stocks, or more stocks vs bonds. You have the same risk (I don't pretend to know the proper, probably non-linear, way to average risk) as someone with a more broad distribution (small cash, more bonds, more value stocks, less growth stocks) and a similar expected return. If more cash keeps you more invested in higher return assets, the low return on cash is not a bad thing.
At around 7:00 you are discussing the Safe Withdrawal Rate for someone with $1 million dollars and a $2,500 SS benefit. Are the SWR amounts you are showing amounts on top of the $2,500 SS or do these amounts include the $2,500 SS?
Having some cash is like buying an option that allows you to buy any stock at all - after its price has declined. Like any option, there is a cost, in this case the opportunity cost of not holding some other asset that would normally be expected to provide a greater return. When the unexpected happens, though, a market correction or a bear market, having cash allows you to buy stocks when they are "on sale" and also allows you to draw down your cash rather than your portfolio for living expenses after your stocks have fallen. You can "buy low" only if you have cash. You must "sell low" for living expenses in a bear market if you don't have cash. Cash certainly isn't trash.
If you live in a high-tax state like California, don't overlook the fact that T-bills and similar instruments (including U.S. Treasury-based money market funds) may be state tax exempt. And you don't have to give up much yield as you would with munis.
Great add on comment
Past performance is no guarantee of future returns!😮
True, although if you look at various time frames over the last century, there has been enough varied market conditions to test against to be reasonably certain of what will happen in the future. If you expand that beyond just the US to other cases like the Weimar Republic or the fall of the USSR, you can be really secure that you've got your bases covered.
This is why people on the west underestimate probability of cash losing ALL of its value.
They never experienced this, but thats very realistic outcome, considering principles of all fiat currencies.
Ok, but shouldn’t you factor income tax in your argument that cash does not destroy net worth? For example, if you earn 5% on a T-Bill and your marginal tax rate is 30%, then your net after-tax yield on that T-Bill is 3.5%. That’s very close to inflation…
On a general basis or analysis, I would argue no. On an individual basis/analysis, taxes should always be factored in. Too many variables to offer a broad analysis such as where you are holding the cash, a retirees tax situation, what type of cash they are holding (there are tax-exempt money market options), etc.
Agreed. Cash allows early retirees to, like us, to manage our "income" and get healthcare subsidies of over $20k per year. Every single retiree has a unique situation so using a "rule" is just a tool to get things organized. Our financial situation changes every year because life happens.@SafeguardWealthManagement
@@jdollar5852 Cashflow is far more important than a lot of people realize. You can have spending less than what you made during the year, but if the income comes in late in the year and the spending is early, you're effectively insolvent and may have to declare bankruptcy.
The bubble everything has all other assets: stocks, Home , Auto etc so over valued they are too dangerous. Get a high yield savings for your cash
Very informative video! I carry enough cash to cover a year such as 2022 when both stocks and bonds were down.
@@_-Karl-_ I totally agree.
Smart presentation
Suggestions on where to put money from sale of a house? Will need 5 yrs of modest living expenses until SS . Was thinking some t bills, some in brokerage and some I bonds....
Forever Stamps at your local post office.
Is buying tips same as t-bills? Thanks!@@_-Karl-_
Hi were from the very unfortunate east country. We never see cash out perform inflation. Lucky you, for us price keep increase and lately from action of your country. Increase more. While our wage is stagnant. How is cash beat inflation for us in the east, maybe can shed some light.
The purpose of having investments and cash is to spend. It is much cheaper to spend cash than to spend retirement funds such as IRA, 401k, and so on when we consider fees and all those taxes we have to pay with their use! Please prove me wrong!
Hmmm interesting video. Im retired, and maintain $30,000 in my checking/savings account. It's not utilized very often. Should i do something different with it?
You are not including taxes, which for cash interest/MMF dividends would be at the holders “top” marginal interest rate
I feel cash should be held to an absolute minimum, Gold, silver and crypo are so much better and saver. The US $ will continue to decline as the the global economy moves away from $ and into other currencies. Cash is trash.
What about dry powder? Cash to seize opportunities??
The best day of investing fiat money is yesterday. Next best option is today.
Holding onto cash is attempt to time the market, it is bet that market crash is more probable than opposite scenario. Odds simply not in your favor, why would you play this 100% long-term losing game?
Holding onto cash is favorite game of perma-bears, even professional ones are miserable and lose to clueless average Joe perma-bulls.
For many not prepared people such cognitive dissonance causes mental disorders, most often conspiracy mentality. You really need that in your life?
@@Georggggwell said. And I agree.
However I didnt mean by dry powder money to put in the market. It was more to seize a business opportunity, a real estate deal, a share in a company that I get solid info on.
Btw, what is with this guy's picture in your avatar? It is all over the web
Fidelity Money Market at 5.25 percent qualified dividends is netting $800 a month. No need for treasury bonds or cd for me.
which one? qualified? my fidelity mm was non qualified even though it said US treasury only so I paid the taxes this year let me tell ya
Which Fidelity MM gives you 5.25%? The highest I’ve seen it go up to is 4.99%.
hold commercial building also 50%+ off, stock to follow soon
When i think of cash I think of 100 dollar bills stuffed under someone’s mattress.
The minute the pie chart comes out, get up and leave the building
Was there even a pie chart in this video? Lol
Why would the government pay you to take government money out of circulation?
To lower inflation is my guess.
Now adjust your graphs to account for tax on interest and see if you can keep up with inflation
Cash is often about peace of mind.
We have about 13% in "cash" accounts. This allows us to keep taxable income low while we are on Obamacare. The subsidy we get outweighs any gains we might get by converting to stocks. We currently get over 5% with our cash, but 3 years ago we were getting .25%.
I retired in 2020 and my wife in 2021, both at age 58. As of today, we have more than when we retired. Our income is based on our combined bring-home pay when I retired. It started at $120k and we have increased it to $145k this year to account for inflation. We could easily drop that down to $75k if necessary because we have zero debt. Our necessities are under $50k. The rest we spend in things we want to do.
Retirement is great!
It is, although various US federal savings bonds can be as well. If a US Savings bond defaults, you're in for a much bigger hurt than just the money you were owed on the bond.
You can only sleep well holding onto cash, if you're clueless.
Probability of cash losing all its purchasing power is 100%.
You can wait over temporarily stock market correction, but you can't do it with cash - if all prices went up, its permanent loss of capital.
Yep.
If the US governemt defaults we will all have a lot more to worry abiut than our portfolio values. MMs are currently paying around 5% to 5.75% that hasnt kept up with inflation over the past 3 years but what has? I do own some Tbills but haven't really played that game enough to fully understand all the ins and outs.@@SmallSpoonBrigade
@@Georggggwhen Clueless speaks, people listen.
I suggest you check out Warren Buffett and his position on cash.
Cash is a tool. It's like any other tool. If you know how to use it it's valuable. If you bury it in a mayonnaise jar...not so much.
I had a heavy, around 23%, cash position in early 2020 because I had moved out of one of my "legacy" stocks. Along came Covid!!! Oil stocks plummeted. Anybody with a heartbeat knew that oil wasn't going to remain at $0 so savvy investors dropped cash into those stocks. 10% of my "clueless" cash netted me 3 years of living expenses.
I own 3 farms. Having green money on hand has saved me a lot of money over the years. I buy a lot of equipment and all my feed with green money.
Use all the tools or don't, but calling people Clueless for using a valuable tool leads them to think maybe you're the Clueless one.
real cash is freedom and it doesnt cost fees don't let a cashless society occur.
if it's making 5%, then no problem
DISAGREE ! The inflation rate per the gov is ALWAYS well below actual ! Most times 'SAFE &/or GUARANTEED returns are below the ACTUAL (1980 evaluated) inflation rate !!! Amount of cash needed for IMMEDIATE use is the amount to keep. AAA Corp bonds, precious metals, gems, real estate for beating inflation !
What is the "true" inflation rate?
@@SafeguardWealthManagement Depending on the evaluators '1980' inputs, I have read 9% to as much as 15% ! Again, though, each different general population individual has their own because of different needs and contractual obligations.
How can it be that when Inflation is high, that Cash Value over time is also high (see year 1980). Doesn't Inflation, by def, cause Cash to lose real value?????
Presumably it's the interest rates and the people taking their money out of cash investments and putting them into things like stocks that are more resistant to inflation reductions in their buying power.
I'd rather hold cash than pay big capital gains, not to mention the bank making more money off of my money than I am making.
"Cash" is not money stuck in a high yield account because they are usually locked in. Same with interest bonds or other assets.
Cash is what is immediately available.
High yield savings are as liquid and immediately available as anything else. Money markets are liquid within days. An emergency fund in a high yield savings account and sweeping the rest of cash into a money market will more than suffice for the vast majority of people and maximize cash returns.
But yes, you are right. Bonds are not cash.
Cash is good
What if your cash is making cash that pays all of your bills ? Live free.
Cash is king because without it you have nothing in this world.
Cash is the best! Hold all in banks for safety! Do not loose on lost on real estate or stocks!😊
It’s spelled “lose” not “loose”.
Way to go ignoring the most inflationary items, medical care and insurance. Disappoint
I think you commented this on the wrong video, but medical expenses were included in the analysis
I find that 100% Dogecoin is the best asset allocation.
Cash is not an asset, it is a utility of exchange. My portfolio is 97% stock, 3% cash.
I'm 99.8% stock & 0.2% cash. I'm 63 & a retired accountant.
Cash is listed under Assets on a Balance Sheet. It's also a utility of exchange.
Yeah 1mil is cash on hand isn't an asset 🤣
The problem is we all know real inflation is way more than the official stats.
Cash is trash
Probably cuz you have none.
@@maness2112 yup cause it's all invested
I would rather have worthless cash in my hand than have it in the bank to pay off its stock holders in the event of a crash! The best investment is in tangible goods to improve your quality of life after the next stock market crash and next great depression!
At 70 years old, I keep cash for I can use money at anytime and anywhere.
I really don’t need to invest my money to any things and I already got what I wanted longtime ago.
Now I just want to enjoy my money and I don’t care about inflation!
Same with me. 70 years old and holding cash works for me too.
Although I do stack silver too.