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Why A Good Investor Should Not Hold On To Cash?

By William WL Tan

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Published: 21Feb2012
Word count: 496
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There is an old saying that "Cash is King." However, taking into consideration of inflation, which is defined as the rise in price of goods and services, cash can be view as a depreciating asset. Would you agree? No?

Let us take an example. A loaf of bread in Malaysia (today Jan 2012) would cost about $2.40. However, would the same $2.40 purchase the same loaf of bread 2 years from now? How about 5 year from now? The answer is a likely no. It does not take a rocket scientist to figure this out. So what has happened? Inflation! The rise in price for goods and services has depleted the buying power of cash. In other words, cash has depreciated. Now, would you agree?

In many of my investment workshops that I have conducted, most participants think that cash is a financial asset. Put things into perspective, with the above example (which by the way is very real), cash IS depreciating every day. While most people do not realize, holding on to cash is financial diarrhea. Like it or not, you are losing buying power with time. The longer you hold on to cash, the poorer you become. On surface, the $2.40 still remains as $2.40. But more importantly than just mathematical figures, is the buying power of the $2.40 in your hands. If it allows you to buy less and less in future, you have essentially become poorer.

The more and the longer you hold on to cash, the more you might struggle in future. Sadly, most people will continue to hold on to cash because it provides "financial security" which is false security. It sounds pretty bleak but unfortunately, it is true. Cash has become a depreciating asset because we live in an inflationary economy.

Cash plays a very important part of our lives. So how can we not hold on to this important "asset?" The trick is to structure your finances and investments for you to stay financially liquid but at the same time stay invested. Getting your cash to work hard for you is the key. Looking for investments that will outpace inflation is a good way to start. More importantly, look for investments that will also generate passive income.

Real Estate investing and stock investing are 2 asset categories that will help. Investing in these asset classes is really not difficult with the right financial knowledge. Investments can be risky but at the same unfortunately, given the economy that we live in, there is really no other choice but to be invested all the time.

Anyone who is serious to be financially comfortable cannot be invested in cash. If you think that investing is risky then before you invest, start by learning how to invest the right way. Every great journey must come with the right education and the right planning.

William Tan, based in Malaysia, is a successful investor. William believes that the stock market and Real Estate are wonderful investment vehicles that can generate passive income for most people to achieve financial freedom. William believes Investing is no longer a choice but a MUST in order to maintain wealth.

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