Generally I bash cash as trash. Overall, the design of the system is to have inflation rates that are higher than cash interest rates. So if you keep a large amount of cash sitting around doing nothing you are constantly losing wealth.
Let’s step back for a moment and consider what I mean when I say cash. Sure you may keep a little cash under the mattress and of course that is cash, but mostly we are talking about cash in checking accounts, savings accounts, and perhaps short term CDs.
After a couple years of high inflation and low interest rates we have a temporary flip where common savings accounts interest rates are above 4% (well, not at many of the largest banks) and inflation is about 3.7%. If your bank isn’t paying about 4% interest then I suggest you shop for another bank! There are at least ten major banks paying 4.3% to 5.5%. Naturally you shouldn’t deposit more than $250,000 in a single bank.
Yes, I’m pro owning physical gold, but the gold prices have been sliding down for the past ten days or so. It’s a good time to build up cash and be prepared to buy gold. Or depending on what your strategy is, steadily be increasing your gold holdings.
Sure, if you don’t screw up, the stock market is typically going to give yields that are better than cash interest rates, but stocks are also “high risk” (a major reason why diversification is highly recommended in your stock portfolio).
Real estate can be a great investment but it’s risky and very hard to quickly convert to cash if you need it.
Even when cash is “trash”, you still want a fair amount on hand to pay your bills and cover any emergency expenses.
My prediction is that this situation won’t last long. It’s possible the system will maintain a fairly rosy picture until the election at the end of next year. But this current interest rate vs inflation rate situation might only last three months or so.
As a small side thought, keep in mind that national inflation figures don’t necessarily reflect your personal inflation situation. Some items tend to hit all of us: the cost of food, the cost of gas and other basic expenses. However a big factor in your personal situation is your home. If you are renting then inflation tends to be worse for you as rent rates increase, if you own a home then you probably have a fixed mortgage and a high percentage of your expenses are stable no matter how crazy the world goes. If you sell your house and buy another house in the same market then you also have a problem with housing costs (including interest rates) increasing. Some people may stay in their homes for the rest of their lives, others may buy a lower cost home in a lower cost market and be nearly mortgage free (and thus insulated against higher mortgage interest rates).
Long term I definitely expect gold to maintain value and I consider it the best way to store your wealth. Short term though, cash isn’t too bad.
Disclaimer: While I may be at one of the very best mathematical minds, I’m not a financial planner. Studying this stuff is still relatively new for me. As always my articles are intended to encourage you to do your own thinking!