Sitting idly on the beach, I read that Corona beer was first brewed in 1925. I flipped to the business section and read about the long term returns on investments – stocks, bonds, etc. I mused, “If grandpa had only given up one of his cases of beer, and instead, invested the bucks into the stock market… he’d have enough today to buy 244 cases of beer and share! Grandma would be happy, our wives not… the powers of time and investing. Some things never change.”
Thomas Paine’s words are eternal… “These are the times that try men’s (and women’s) souls…” People are concerned about their financial future. That concern is real –unemployment, slow economy, and weak housing, or perceived – distrust in governments as custodians for currency values, America in decline, and global uncertainties. Paine also wrote “I love the man that can smile in trouble, gather strength from distress, and grow brave by reflection.” We largely have a choice in our future. Applaud those fighting a good fight, and may we persevere.
Holding cash (savings) is prudent. It serves important purposes – emergencies, flexibility, and planned expenses. A good rule of thumb is to stash enough to cover 3-6 months’ living expenses (1 or 2 years for retirees or those with precarious job situations).
I generally recommend investors refrain from ‘running scared.’ Don’t stuff all your retirement in the mattress. Here are 3 reasons why you should not hold cash.
• Worth less in the future – Inflation is a silent menace. The threat grows as leaders borrow to get out of debt, and spend our way out of deficits. A Franklin note will decline in value. If inflation averages 3%, it would be equivalent to about $74 in 10 years, $54 in 20, and $40 in 30. And what if inflation ramps up? $100 cash in 1945 was worth about $67 by 1955; and from 1971 to 1981, $100 declined to $44. Invest to outpace inflation and taxes.
• Stick to your plan – Warren Buffet said “It only takes 2 things to succeed, first having a reasonable plan, and second, sticking to it; and it is the ‘sticking to it part’ that most investors struggle with.” There are plenty of attractive investment opportunities – undervalued assets, alternative investments, and a growing demand from expanding global wealth.
• Make the world a better place – Money is a tool; it can help create value long after we leave this good Earth. Recently, I was talking with a client… she wanted to know if she could afford to help her grandson Tony with college costs. He’s a good kid. But he works 30 hours a week and attends junior college when he’s able. Towards the end of our visit, Grammy June says “Sometimes I feel guilty. I’m well off, not rich, but comfortable. Yet there are many people not so fortunate. I’m going to call Tony for lunch and a chat.”
Investing has its risks. But if prudently managed, the payoffs can be tremendous – better than a lumpy mattress.