Good Reasons to Hold Cash

fizio

With inflation where it is at - holding cash is simply a way to lose money. Youcan mitigate this a bit with a cash isa or semi-decent interest savings account. Obviously we all need an emergency cash fund but the amount in it depends on personal circumstances.
I'm in the camp of holding onto some cash that is sitting in a S&S ISA ready to go if/when the markets take a tumble. But I'm also investing in low risk worldwide index funds of various kinds.

atush

MarcoM wrote: »

Yes but for someone that is not self employed consideration needs to be given to job loss.

I have a few thousands saved up and getting nothing in the bank (3%). I earn the average wage and own a property. But if I lost my job I know that I would not get a similar one as all companies in my field are getting rid. So I may be faced with retraining for a period of time or moving away if a job was somewhere else. Cost of property elsewhere may be 30% higher than where I live now. Also include commute cost or even renting a pad for during the week.

For me the old mantra of having six months of wage accessible in cash does not cover the risk of losing my job. I know it would take me a lot longer to gain reasonable employment and I would not want to risk having to sell after the six months worth of savings is erased.

Am I being too cautious?

In your case I would have at least one year saved as your job is apparently at risk? I would also be proactive with insurance and with looking into possible retraining or emigration etc if your job is still a sought after one in other locations.

WhiteHorse

Cash is money.* Stocks and shares aren't. If it all goes pear shaped, you won't be able to trade your stocks and shares for cash.


*We'll avoid the fiat money-vs-gold argument.

Imnoexpert_2

Thanks to Rolling Home for a thoughtful contribution. I too have noticed that comparisons usually understate the returns from 'cash' as opposed to 'investments'.

Apart from the last year or so I have had relatively good interest rates from shopping around Building Societies and fixed rate accounts. My pension meanwhile in various funds has been lacklustre.

I have only now in the last 18 months when I have time to get interested in investment started to diversify into a range of funds spread over a variety of asset classes. I am not trying to time the market (I don't think I am that clever) but I am drip feeding money in rather than investing all in one go. I am currently sitting on losses which I can afford and was prepared to accept the risk on.

My observation is that cash is a lot less scary and risky than the last few years have been with investments, and sometimes peace of mind is worth paying for. For example I wish I hadn't invested in M&G Global Basics, but I think it is a long term bet so I'll hold. I'm glad I only have a small investment though!

Linton

WhiteHorse wrote: »

Cash is money.* Stocks and shares aren't. If it all goes pear shaped, you won't be able to trade your stocks and shares for cash.


*We'll avoid the fiat money-vs-gold argument.

True, but if things went that pear shaped I am not sure your cash would be worth much either.

How much of your current wealth should you sacrifice to deal with the possibility of financial and political armegeddon?

I would take the view that you cant do anything to affect the likelihood and whatever your do to mitigate the effects may be completely pointless. So you unless you really are absolutely convinced it is going to happen you are best off ignoring it.

GeorgeHowell

Ark_Welder wrote: »

The MoneyWeek article does show an inconsistency with itself by suggesting that holders of cash should go on to indulge in currency speculation.

Agree, that was the weakest part of the article for me.

"The fees are in the hefty mark up between savings rates and borrowing rates. Plus the taxmans fee of course."

That's a fair point too. But savers need not be directly concerned with borrowing rates, and the taxman also gets his teeth into returns from equities.

Ifts

Read this article a while ago on Buffett’s grandfather Ernest's thoughts on holding a bit of cash:

http://monevator.com/2011/03/03/buffett-family/

Linton

GeorgeHowell wrote: »

Agree, that was the weakest part of the article for me.

"The fees are in the hefty mark up between savings rates and borrowing rates. Plus the taxmans fee of course."

That's a fair point too. But savers need not be directly concerned with borrowing rates, and the taxman also gets his teeth into returns from equities.

Why shouldnt savers be concerned with borrowing rates? Surely, if the hidden fees on cash deposits were much lower the returns would be closer to the borrowing rates. Its all much the same as fund charges and the cost of investing in individual shares.

Returns from equities are only taxed on realised capital gains of more than £10K approx annually. As you can protect £10K per year of capital in an ISA, you need to be a pretty big investor for capital gains tax to be a major problem. Dividends are tax free for standard rate tax payers. So the tax on interest is far more onerous than that on returns from equity holdings.

WhiteHorse

Linton wrote: »

True, but if things went that pear shaped I am not sure your cash would be worth much either.

True! I guess it's a question of how pear shaped.

I recall my father advising me many years ago that in the event of another war 'get a cellar and fill it with whisky and cigarettes. People will put those before food'.

bigfreddiel

GeorgeHowell wrote: »

In essence this says that cash is liquid, it reliably holds 100% of its nominal value....

RPI 5%+

FTSE 5% down on the year

fj