Do you have savings in cash? Oh dear.
Much less chocolate for you then.
If I was writing a financial blog, it’d be now that I’d give you a long sensible spiel about how you should always keep cash for emergencies. Not today.
Today, we’re going to talk about how keeping your investment in cash is STUPID.
Stockmarkets do this:
- They go up
- They go down
- They are unpredictable
Does it matter? Not really.
Is it better to keep your money in cash then?
Your real risk is that you lose out by holding cash for too long.
When I say lose out, I don’t mean you could have bought a nice pair of shoes. Or an extra holiday. I mean lose half your money. THAT’S RIGHT.
Half of your moola, dosh, spondolicks, euro, quid, dollar.
Why? Inflation is a mean mistress.
You might look at Greece today and think that cash is a safe place to keep your money. A lot of investors like cash because they think that the original sum invested doesn’t diminish when markets are going craaaaazy. They also have this cute notion that interest payments, like OBVIOUSLY, make your cash worth more over time. It makes cash look like a sensible choice, doesn’t it?
Are you planning on living longer? I am. That means you and me are both going to spend more years in retirement than previous generations.
You’ll be reliant on your savings and investments to fund your lifestyle.
To buy you sexy expensive nanotech for your 95th birthday to make you look like you’re still 75 and still have teeth.
And medicine - its going to advance massively, but will you be able to afford it? Will you be able to put food on your 3D-printed table?
Unless you’re into eating own-brand baked beans on cheap sliced bread which toasts badly…you might want to address that.
Have you seen interest rates lately? That’s not going to keep me in posh vodka and Charbonnel et Walker Pink Champagne Truffles*
*this is blog is not sponsored. But if anyone at Charbonnel et Walker wants to talk to me about that, I'm open to (chocolate) discussion.
Need a demonstration? That’s fine. Let’s imagine a world where interest rates are close to zero – and we’ll say inflation is a wholly modest 3% over the next 25 years. A bit like the one we’re in.
You and I both have £100,000. I invest mine in something bland, like an index fund, which tracks world markets.
You leave yours in the bank. So safe!
Fast forward ten years to 2025, – your 100k has been eroded by inflation. In real terms, it’s now worth about 80k.
And in 25 years? Under 50k.
Think of it like this - when was the last time you bought a Mars Bar?
25 years ago in 1990 a Mars bar cost 26p. Now they cost 51p. (Also they have less calories in. Why? Because Mars promised the government to cut calories – and then said the only way they could do this was to – wait for it – make the Bars smaller).
So just remember:
Inflation makes things smaller. Like your money. And Mars Bars.