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The Ongoing Issuance of Cash
Who doesn’t like holding a crisp new $100 bill in their hand? Whether it's for a quick fill-up at the pump or tucked away under the mattress, cash has always been a top choice for spending and saving, even in today's digital age.
However, people may not realize that sitting on too much cash can have its downside over time. As individuals continue to hold onto their cash, they might be overlooking some of the risks associated with this seemingly safe strategy.
This article aims to shed light on the cons of holding cash and explore various avenues individuals might consider instead of putting “all your eggs in one basket.”
What is Cash?
Cash refers to the physical or digital currency that individuals or banks hold and use for goods and services. It's the most liquid asset, meaning it can be quickly and easily converted into other forms of value or used to purchase goods and services. It encompasses both the bills and coins in hand as well as the balances in checking and savings accounts, which can be readily accessed for use. In the traditional sense, it's the bedrock of all monetary transactions, providing immediate value in exchanges. However, when cash remains uninvested or simply sits in standard savings or checking accounts, it often becomes what's termed “idle cash.”
The Cons of Holding Cash
People have long seen keeping cash on hand as a safety net, thanks to its tangible feel, easy access, and being steady, unlike the rollercoaster ride of stocks. However, this sense of security might not be the whole picture.
Having a stash of idle cash might feel like the “safest” way to guard your money, but there are some hidden risks:
Inflation and Purchasing Power
The primary disadvantage of holding cash is the gradual loss of purchasing power due to inflation. As the cost of goods and services increases over time, the same amount of cash buys less, effectively diminishing the value of your savings. What $100 could buy today may fall short in acquiring the same basket of goods a few years down the line. This gradual decline in value is not as bad as it may appear on the surface. A persistent rise in the price level of goods and services implies that each dollar held in cash fetches fewer goods and services over time.
To put it in practical terms, if you spent $100 for a brunch in 2022, you might get one fewer mimosa compared to 2019, which is like having $15 less to spend. If we rewind to the year 2000, what you could get for $100 then would set you back $172 today.
Let's look at a few more examples of how inflation affected goods from the year 2000 to today:
- Carton of eggs
- 2000: $0.91 per dozen
- 2022 $$2.86 per dozen
- Gallon of Milk
- 2000: $2.78
- 2022 $4.09
- Gallon of gas
- 2000: $1.56
- 2022: $4.03
- New Car
- 2000: $21,850
- 2022: $46,290
As you can see the price of goods tends to increase over time, therefore devaluing the purchasing power of a dollar.
Growth and Countering Inflation with Diverse Investments
Cash, when left idle, does not appreciate or yield substantial returns over time, especially in comparison to other assets. Holding onto cash rather than investing can lead to missed opportunities for wealth preservation and growth, particularly in the long term. While cash may not keep pace with inflation, diversifying into assets such as stocks, bonds, real estate, cryptocurrencies, and precious metals can offer potential appreciation.
Historically, this diversification has served as a strategy to counteract the diminishing effects of inflation, providing a mix of capital appreciation and income generation that can help maintain or even boost one's purchasing power.
There are Options
With inflation chipping away at the value of idle cash and the missed potential of wealth appreciation, the necessity for exploring financial strategies becomes apparent. While there is a place to hold cash for everyday use and emergency purposes, one might consider looking into other options to help counter the effects of inflation.
Transitioning into solutions, iTrustCapital offers a platform where you can buy and sell alternative assets such as cryptocurrency, gold, and silver in a tax-advantaged IRA.
Interested to learn more about why investors use IRAs? Read the article below.
This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
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