I'm a firm believer that holding some cash as an investment is not that bad of an idea. Sure, I acknowledge that inflation will eat into it over time and that there are plenty of people out there that say not good to keep too much in cash, but I think there can be some real benefits to doing so. While I'm not saying that I'm going to keep all my assets in cash or anything like that, in my experience, having some cash on hand can come in handy for several reasons.
I still remember several years ago when my father-in-law gave me a great stock tip. While I'm not a huge stock market fan, I understand the reality that many of those who make money with the stock market do so through increased knowledge, tips, and even insider tips.
The downside to my stock tip experience was that I couldn't really do much with my tip. Most of my available cash was tied up in our home equity. And while our home at the time was on the market, that did little to free up any liquidity for other investments. By the time the house sold and I again had some cash in my pocket, the stock from my father-in-law's tip had shot up about 60 percent and leveled off -- so much for the fast money.
A Hedge against Emergencies
Since I can't see the future, I can only plan for what might happen. Part of this planning comes in the form of a cash emergency fund in our checking account. While this fund isn't a vast fortune or anything ($5,000), it's enough to get us through a multi-month period should income suddenly decline or should w need to pay off a big expense should one arrive, helping us to stay out of debt.
Another aspect of having this cash fund links up with my aforementioned investment opportunities. While my reserve amount might not be enough to make me an instant millionaire, should a sudden investment opportunity present itself, I might at least be able to get my foot in the door and make a little extra cash in the process.
It seems that we're increasingly becoming a world where more and more records of activities are maintained. Whether by way of the Internet, cell phones, ATMs, or whatever, when it comes to saving, spending, banking, and investing, it's hard to find a way to conduct transactions these days without some record of it being kept…and not everyone is a fan of that.
While I'm not advocating anything illegal here -- money laundering, tax evasion or anything like that -- sometimes it's just nice to have a little privacy in our transactions, and having cash on hand can be a great way to do so. If I want to go out and buy my wife something special, but don't necessarily want it showing up on our credit card statement or bank account, cash can be the perfect way to do so…and she agrees!
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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