I had a discussion with a young colleague today about investments in general. We went through many popular forms such as stocks, bonds, real estate, et cetera, arriving somehow at cash. This became quite humorous for me, as I think investing in cash is amongst the most foolish investment choices. He didn't agree.
We defined "investing in cash" as the process of committing money, storing it in the form of cash (domestic currency in physical paper form or in a chequing account), for the prospect of future returns.
I think most everyone knows why this is a poor investment, in fact I wouldn't even regard it as a proper investment. In my opinion, it's the act of not investing. Sure, you can save cash in preparation for a real, large investment, but I dearly hope that cash isn't your final target.
Anyway, its demerits are simple and numerous: inflation nibbles (or chomps) away at your purchasing power, which is obviously not increasing; you're at the whim of the volatile currency market; and quite plainly, there's no growth. These were the ones I suggested.
He didn't have time for much rebuttal as the lunch bell beckoned us to our cubicles, and being a curious guy, I would like to hear some merits of being a "cash investor". I just doubt a combination of miniscule growth potential and low security make for a good investment.
Brainstorm! - show me your creative financial genius!
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A wee parcel of thought amidst a sea of others
5 comments:
Hmmm...your arguments sound logical sir. But since I don't really know that much about investments, I guess I wouldn't really I have much to say. I look forward to being educated by some of the other people here who have much more experience in this are than I do. :)
Cash is awesome.
It buys stuff.
Awesome = good.
Good <--> It helps you.
It helps you =/= It sucks
It helps you <-- awesome
Awesome <-- awesome
Proof above is cash man (awesome).
Yeah, that's the good stuff right there.
Hahaha!
Some clarification: I agree with what Ray wrote - which is sound - but the cash investment should be in a savings account or a redeemable GIC, not paper money or in a chequing account, as per my definition. So, while having cash equivalents in one's portfolio is wise, having them (large amounts of cash) in the two forms decribed in my definition is not.
In other words, if my definition of investing in cash was changed to "the process of committing money, storing it in the form of cash (any cash equivalents with instant liquidity and some growth), for the prospect of future returns", then indeed it is a valid and often recommended form of investment.
As I like to say, liquidity is an asset.
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