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The Dangers of Investing in Cash

August 5, 2013 by Bautis Financial

It is worth reminding ourselves that inflation is the major downside of holding cash. Even in the low-inflation environments in much of the developed world, returns on cash have not kept up with consumer price increases.  So the value of cash diminishes in real or inflation-adjusted terms over time.

In the chart below the return on cash after inflation and taxes take their bite is a negative .8%.  And that is taking into account a 3.5% historical annual return on cash.  I don’t think there are too many savings, checking, money market, or mattresses that are paying a 3.5% return on your cash.

cash_negative

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