Is Cash Really Trash?

If you’re like me, born and raised in a Pakistani middle class family, you would have to earn your financial freedom. You weren’t born with it and you have to work your way up. Thankfully, unlike the previous generations, it’s easier for us to do so. With access to global markets, and a potential reach of 3.2 billion, you’ll make it even if you get fraction of the market.

But what happens once you achieve your financial goals? You earn a certain amount of money, and you stash your banks with cash and you feel it’s going to last for a certain period of time. But along the way, you also realize its running short faster than you thought.

There are 2 reasons why that could be happening. You may be over-spending and not keeping track of your finances. And that the inflationary financial system is not designed with you in mind. It is eroding your purchasing power, and pushing you two step backwards as you try to take a step forward.

This is especially true for Pakistan where inflation is high as well as the PKR has only weakened against the USD since the inception of the country. But it is also true for US where inflation at average is 2% per year for the last 10 years. Bitcoin on the contrary has only increased purchasing power in its life cycle and hence can be categorized as a deflationary currency, although some disagree.

But how do you solve this crisis? By not keeping the majority of your savings as cash. Cash can be bad, especially if it’s PKR you’re holding onto. Over 50% Americans invest in stocks for the long-term to preserve and grow their wealth while 0.125% Pakistanis do the same in comparison.

If you had held on to S&P 500 index for 10 years starting from Jan 2009 to Jan 2019, you’d have had a return of over 200%. It would have been over 250% if you re-invested dividends and this would be in USD, of course making additional money for you if your base currency was PKR.

Even if you invested in 2007 at the market peak and went through the financial crunch of 2008, you’d still be up over 100%, and 150% if you re-invested dividends.

If stocks isn’t your thing, and it wasn’t my thing too, you could invest your money anywhere you like. But it is absolutely necessary to do so. Because at the very minimum, you have to preserve your purchasing power, even if you’re not trying to increase your wealth with aggressive investing strategies.

It is still a good idea to hold on to some kind of cash. It’s great to have it in emergencies, and it’s what you need to survive. Having access to cash is also great when things are trading at a discount and markets are in turmoil. At the same time cash is the only asset that is guaranteed to lose value, other assets may or may not. And the only point I’m actually trying to make is cash isn’t as safe as I originally thought or as most people probably think.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. I do not make any guarantee or other promise as to any results that may be obtained from using my content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

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