Savings all in cash.... or diversify

i_was_taught_2b_cautious · 2 April 2016 at 12:32PM

Hi all

i have seen many times on this forum people saying that people with savings should diversify, and not hold all savings in cash.
Not keep eggs in one basket.....

But I have also heard accountants, and people who are very savvy say that CASH is king.

What are your thoughts?

masonic · 2 April 2016 at 12:41PM

Cash is trash. Other than an emergency fund covering ~6 months of living expenses and any money you intend to spend within the next 10 years, you will almost certainly do better putting the money into investment products.

Mistermeaner · 2 April 2016 at 12:55PM

Cash is king is referred to often in terms of running a business where cashflow is more important than outright profit.

Context is missing here

Mistermeaner · 2 April 2016 at 12:56PM

Turnover = vanity
Profit = sanity

But cash is king

pathtofreedom · 2 April 2016 at 1:41PM

It depends where you keep the cash as well though. If you keep cash for 10 years say, earning minimal interest, you're actually losing money over all due to inflation. If you have a lot of cash, over 70k you need to think about not keeping it all on one place so you're covered by the protection if the bank goes bust too.

Really it depends what you're saving for as well, is it long term savings so you won't touch it for 10 + years, if so you're probably better to have some if not all of that in some sort of investments as you should beat inflation and basic interest rate accounts. If you're thinking 5 years or less a stocks and shares isa might not be as good an idea if you can't wait for the natural up and down of the markets to recover over time.

Not all investments have to be high risk either, but just saving everything in a 2-3% account for 10 years would mean you actually lose money over time. Especially if you go over the new tax free £1000/£500 thresholds depending on if your a hrt payer or not.

economic · 2 April 2016 at 2:04PM

i wouldnt go all out and invest all the cash in one go. look for opprtuntiies in the stock market, property or whatever. thats why cash is king - its liquid and readily available to deploy.

i do think lot of the advise on MSE is very dangerous in that cash has its place in any invesment portfolio. i would hold more then 6 months cash as opportuntiies in the market do arise. also you need to think what is happening in the economy - we are going through a deflationary period with low interest rates so i would say at this time its good to be overweight cash ready for the opportunity whenever that arises.

parksandrec · 2 April 2016 at 2:10PM

I think if you have any relatively large some of money putting money in a tax free high interest isa account is a good choice because the amount will increase over time (always a bonus &#55357;&#56842; ). Keeping money in stocks and shares on the stock market might be another viable idea

bowlhead99 · 2 April 2016 at 2:22PM

Of course cash is useful because you can use it to buy investments that make money.

If you are just holding cash because you heard it is useful, you won't make the money.

Brian Spector, a departing partner of Baupost (very succesful hedge fund) wrote in the investor letter accompanying the 2015 Q3 report:

"When we don’t find interesting ideas, we do nothing and hold cash".
...
"One of the most common misconceptions regarding Baupost is that most outsiders think we have generated good risk-adjusted returns despite holding cash. Most insiders, on the other hand, believe we have generated those returns BECAUSE of that cash. Without that cash, it would be impossible to deploy capital when ... great opportunities become widespread."

Robin Angus of Personal Assets Trust referenced Spector's comments in his own next quarterly report, and stated:

"...Cash is freedom. Cash is opportunity. Cash is hope. Cash is our friend, and we will never apologise for holding it when we think it right to do so.

Personal Assets is long of cash as I write, because we believe that this will be greatly to our advantage when investment bargains start appearing..."

"...We hold cash, gilts and gold bars as a means to an end, not as an end in themselves".

masonic · 2 April 2016 at 2:36PM

bowlhead99 wrote: »

Of course cash is useful because you can use it to buy investments that make money.

The trouble is, investments tend to rise more often than they fall, so delaying investing money in the hope that your investment will be cheaper to buy in the future is not something that is likely to pay off on average.

This is the same concept as drip feeding. Holding cash, or drip feeding into an investment, can lower risk, but unless you can effectively time the market, you'll tend to be better off investing money as soon as it becomes available for investment.

masonic · 2 April 2016 at 2:38PM

parksandrec wrote: »

...putting money in a tax free high interest isa account is a good choice...

Please enlighten me as to an example of a "high interest ISA account".

parksandrec · 2 April 2016 at 3:52PM

masonic wrote: »

Please enlighten me as to an example of a "high interest ISA account".

moneysavingexpert . com / savings / best-cash-isa

Take the spaces out and maybe consider reading that

Savings all in cash.... or diversify

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