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The High Cost of Sitting on Cash

conceptual image of man holding a small gold egg
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By Mandi Woodruff

In the latest financial security index by, more than a quarter of Americans said they'd rather keep their savings in cold hard cash, even if they wouldn't need the money for more than 10 years down the line.

After cash, real estate garnered 23 percent of the vote, followed by gold and other precious metals with 16%. The stock market ranked the lowest of all, with just 4% of votes.

While no one can blame investors for shying away from the market after the volatile few years we just had, there's a lot wrong with this line of thinking. For starters, interest rates are so low these days, you might as well stuff that cash under your mattress and call it a day. The average money-market deposit account yields just 0.11 percent, according to Bankrate, and the average five-year CD currently yields just 0.78 percent.

Real estate and gold aren't exactly what one would call a secure investment either. How do you turn a house into a pile of cash when you need to make ends meet in retirement?

"Americans not saving enough is well-documented, but hunkering down in cash investments and settling for low returns will only magnify the problem of not having a sufficient nest egg to meet longer-range financial goals such as retirement," said Greg McBride, CFA,'s senior financial analyst. "Other choices may not do the trick either, as real estate is not only very cash-intensive, but often illiquid. And precious metals spit out zero cash flows, with gains solely dependent on price appreciation."

From the survey data, it looks like education and income play a big role in how much store investors set in cash. Poorer people with high school degrees or less were more likely to favor cash, while people who were college-educated and earned more than six figures more often favored stocks and real estate.

Hopefully, this chart reaches all investors, no matter how educated they are. It's from BlackRock, showing cash has an average annual return of just 0.5 percent after inflation (and sometimes less). This is based on data over more than 80 years and is no fluke. On the other hand, stocks have yielded between 9.8 percent and 4.5 percent after taxes and inflation.

What's a spooked investor to do?
Go easy on yourself. You don't have to open an E-Trade (ETFC) account and spend your lunch hour trying to beat the market (you won't, trust us). Just throw your savings into a low-cost index fund either through your employer-provided retirement plan or in your own IRA. Index funds have beaten the market and professional investors so often that it's a wonder anyone doubts how powerful a retirement tool they really are.

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August 05 2013 at 4:47 PM Report abuse -1 rate up rate down Reply

The comment from "toosmart4u" is wise. Some would have you wait to apply for Social Security in order to recieve a larger pay out. Yes.. this would be the wise thing to do IF the program were in it's orginal state. In other words, when it was under the people's control. But thanks to President Johnson (Democrate), it's no longer under the people's contro, it belongs to a broke government. Your choice.

August 05 2013 at 11:33 AM Report abuse +1 rate up rate down Reply
1 reply to raptureus210's comment

People give false blame to Johnson for draining the Social Security surplus, when in fact the first,was Reagan. LBJ combined the budget stats for SS and Medicare into the General budget to confuse taxpayers as to the cost of Nam. Not until the Tax Reform Act of 1983, signed by Reagan, could those funds be taken. This led to our first 3.5 trillion in debt, as reagan increased the percentage going into the fund, hoping to pay for the largest tax cuts in history, it failed, and the 3.5 trillion debt is the result.

August 05 2013 at 3:47 PM Report abuse -1 rate up rate down Reply
1 reply to rostra's comment

I thought it was Johnson, Damn, looked it up, it was Reagan, so much for my placing blame on others in the future.

August 05 2013 at 3:51 PM Report abuse rate up rate down

Which will be best..investing in freeze dried foods, water system, paying of bills, while our cash is still worth something or sit on it until it becomes worthless?

August 05 2013 at 11:26 AM Report abuse rate up rate down Reply
Joey B

Mandi, why do you even open your writings up for discussion? Speak your educated peace and leave in peace! Just look at some of these comments! It's embarrassing and discredits your educated, experienced mind. It's equivalent to asking a bus driver to comment on a operation procedure by an accomplished doctor. Frankly, what is the point? To find out the level of education your readers have? If so, you have your answer, for the most part!

August 04 2013 at 6:24 PM Report abuse +1 rate up rate down Reply

When I sit it's not on cash. My recliner which is 10 years old isn't worth any cash.

August 04 2013 at 2:11 PM Report abuse +1 rate up rate down Reply

Like any good investment strategy, diversification is key. Don't keep all of your money in cash. All your principal is exposed to constant inflation risk if you do. On the other hand, don't keep all of your money 100% invested, either. Then, you have 100% exposure to market risk. Instead, keep enough cash to cover one to two years' worth of living expenses, and invest the rest. If you invest in, say, stocks, and the market crashes, then you just live off your cash nest egg (and maybe even BUY a little while stock prices are low). No matter what, you'll sleep better knowing you can pay your bills regardless of what the Dow does today or tomorrow.

August 04 2013 at 8:52 AM Report abuse +1 rate up rate down Reply

put it in some fund so the management fees can eat it up one bite at a time. this article sucks

August 04 2013 at 5:55 AM Report abuse +3 rate up rate down Reply

Say what you may; real-estate is the safest bet for now. Not commercial either.

August 03 2013 at 5:03 PM Report abuse rate up rate down Reply

Only the uneducated ignorant delusional poor folks with no common sense believe the economy is getting better. They are the only ones that don't appreciate the minimum wage job they get & fuk it up & then gripe cuz they don't have any money. 3 hots & a cot has always appeared like a better deal to them. Why else do so many wind up incarcerated.

August 03 2013 at 4:01 PM Report abuse -4 rate up rate down Reply

Been in the stock market for a while, not too impressed. With automatic computer trading, the market really doesn't reward small fry like me who don't do daily or hourly trades. You really won't make much because it's not set up for the casual user (like me). That being said, the market is about the only thing you can count on to beat inflation over time. I'll stick.

August 03 2013 at 3:47 PM Report abuse +1 rate up rate down Reply
1 reply to Dan's comment

I have been in the stock market since 1980 and I have been very fortunate as it is very rewarding for me. I wouldn't be where I am now without it. I have several individual stocks and mutual fundsd I have had for years. Back in 2006 or 2007 when the market tanked I did not sell and it has all rebounded from back then.

August 03 2013 at 5:31 PM Report abuse rate up rate down Reply
1 reply to merstockgto's comment

Same here - I\'ve certainly made a much higher return on stocks than I would putting money in a savings account. And I\'m a small investor.

August 04 2013 at 5:29 PM Report abuse +1 rate up rate down