27 Jun 2024 What Is Cash For?

Posted at 14:50h in The Friday Brief by

Repeat after me: Cash. Is Not. An Investment. 

In this moment, when you can get a risk-free 5% while inflation sits around 3% (and when for more than a decade you got maybe 1% when inflation was often sub-2%), cash may feel like investment, but it is not. It’s important to say that for many reasons, not least of which is that at some point (though I don’t know when) interest rates will come down and folks treating cash like an investment will see their already steep opportunity costs sky-rocket. A WSJ article from this week termed that conundrum “the cash trap.” 

But if cash is not an investment, what is it? The cool thing is that while it may not be able to do the investing job well, it does many other jobs extremely well.

  • Flexibility. Last minute, unplanned trips. Taking a pay-cut for a dream job. Generous giving. These are just a few examples where cash is a tool to help you live a flexible life in the service of your deeply-held values.
  • Buffer. Life is beautiful, and it’s also punctuated with hard, unforeseen circumstances. Cash can help reduce the economic anxiety that those circumstances inevitably invite. Health scares, home repairs, falling investment shares—cash can keep these hard things from causing your financial situation to spiral.
  • Opportunity. Cash may not be an investment, but cash can be used to buy investments, and so cash represents opportunity. As I said above, that opportunity has a cost, but in the context of a sound investment strategy that cost is often worth paying. In some ways Opportunity is the culmination of Flexibility and Buffer, because when you have those things you feel the freedom to maximize high quality opportunities when they arise. 

So cash isn’t an investment (have I said that before?), but it is still very important. Just make sure it’s doing the right jobs.

 

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.

Jared Korver
[email protected]

A product of small-town North Carolina (Carthage, to be exact), I’m proudly married to my best friend and co-adventurer, Amy. Together, we have two sons–Miles and Charlie–and could more or less start a library from our home. I love being outside, can’t read enough, am in the habit of writing haikus, and find food and coffee to be among life’s greatest treasures.