{"id":1040,"date":"2011-11-10T13:50:03","date_gmt":"2011-11-10T21:50:03","guid":{"rendered":"http:\/\/www.marketriders.com\/blog\/?p=1040"},"modified":"2016-12-21T07:34:30","modified_gmt":"2016-12-21T15:34:30","slug":"your-cash-aint-nothing-but-trash","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/your-cash-aint-nothing-but-trash\/","title":{"rendered":"Your Cash Ain’t Nothing But Trash"},"content":{"rendered":"

Baby boomers who grew up listening to this Steve Miller song remember that it was about a guy who had cash, but couldn\u2019t get a girlfriend, buy a Cadillac, or even get arrested.<\/p>\n

<\/a><\/p>\n

In reality, cash isn\u2019t trash, but cash generally doesn\u2019t belong in long-term investment portfolios, unless you are an avid investor trying to beat the market. Here are several problems with having your retirement funds invested in cash.<\/p>\n

Market timing doesn\u2019t work.<\/strong> Many investors, when nervous about the market, \u201cgo to cash.\u201d And they wait it out until they \u201cfeel better about things.\u201d If you do this, you are timing the market, which means you believe that some little voice inside of you will tell you when to jump back in. Virtually all research proves that marketing timing doesn\u2019t work. Most of the large market moves come within weeks after markets hit bottom. No one consistently can predict market bottoms\u2014not even you.<\/p>\n

It is shocking to look at long-term compounded returns when one tries to market time. In \u201cWinning the Loser\u2019s Game,\u201d Charley Ellis points out that from 1980\u20132003, if you cut out the best 30 days (just half of 1 percent of the total days over those 23 years), you would have lost about 40 percent of the gains. Find the right balance of fixed income (bonds) and stocks that you can live with during dramatic market moves and stick it out, no matter what the market is doing.<\/p>\n

Cash deteriorates over time. <\/strong>While you sit with cash, thinking that at least you aren\u2019t losing money, realize that you are living with a false sense of security. Cash is eroded every day by inflation. Forget the government numbers; they are manipulated so the entitlements like Social Security don\u2019t get out of control. We all know that steak dinners, vacations, gas, and cars are all more expensive than they were ten years ago. If real inflation is 3 percent, that cash you have sitting around for five years just lost about 15 percent of its value.<\/p>\n

Is your cash safe?<\/strong> Where is the safest place for your cash? Hiding dollar bills in safety deposit boxes? If you leave cash in a bank account, the FDIC will guarantee your money for up to $250,000 per depositor per bank. Leave cash in a brokerage account and it is usually automatically invested in money market funds, which aren\u2019t necessarily safe. Money market funds buy all kinds of bonds in order to generate a rate of return. Today, your money market fund probably has international bonds from Greece, Italy, and other countries that are in bad financial condition. The greatest fear from regulators is that a money market fund \u201cbreaks the buck,\u201d which means that the value of each share falls below $1. At least 36 of the 100 largest money market funds had to be propped up in order to survive the financial crisis.<\/p>\n

A safe way to hold cash is buying BIL, which is an exchange-traded fund (ETF). Owning BIL gives you a basket of U.S. treasuries that have a remaining maturity of one to three months and have $250 million or more of outstanding face value. The expense ratio of BIL is 0.15 percent, and since treasuries yield about as much, this fund runs at a breakeven. But you own treasuries, which are safer owning a money market fund. Holding BIL in a brokerage account like Schwab or Fidelity ensures that you can claim it as your property if the broker goes bust.<\/p>\n

Cash for spending needs, and a rainy day fund is fine. But for your long-term investment portfolio that you are managing to fund your retirement, having cash is like driving with the brakes on. The \u201csafe\u201d part of your portfolio should be invested in bonds, not cash.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Baby boomers who grew up listening to this Steve Miller song remember that it was about a guy who had cash, but couldn\u2019t get a girlfriend, buy a Cadillac, or … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":1401,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[4,7],"tags":[],"yoast_head":"\nYour Cash Ain't Nothing But Trash | MarketRiders<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/your-cash-aint-nothing-but-trash\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Your Cash Ain't Nothing But Trash | MarketRiders\" \/>\n<meta name=\"twitter:description\" content=\"Baby boomers who grew up listening to this Steve Miller song remember that it was 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