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Cash as an investment
August 13, 2013 by atm Atom — blogger, atmatom
In an interesting twist on the "death of cash" argument, a July bankrate.com survey identified cash as the most popular long-term investment. Yes, you did read that correctly. Cash was identified as the preferred place to store money which would not be needed for more than 10 years.
Not only was cash identified by 26 percent of 1,005 respondents surveyed as their preferred investment vehicle, but it was nearly twice as popular as stocks and nearly three times as popular as bonds. Real estate and gold were numbers two and three in order of preference.
It would appear that this preference for cash as an investment vehicle will have a positive impact on retail use, joining the other factors at work today:
Cash is convenient. It's nearly universally accepted for the purchase of goods and services (airline food and drinks aside).
Proponents of the death of cash argue that it is the inconvenience and cost of acquiring and carrying cash which will drive the use of alternative payment methods. This argument ignores the "service interruption risk" of electronic payments regularly arising from inclement weather, domestic disturbance, war or other natural catastrophe.
When electronic payments are seen as less than fully reliable, cash use will remain robust.
Cash is anonymous. This advantage applies not only to illegal transactions or to the estimated $400 billion in "tax leakage." The anonymity of cash also allows the buyer, the seller and the transaction itself to remain anonymous, for whatever reason.
Now that all digital activities including payments are rumored to be stored in "the cloud," look for the use of cash to increase.
Cash is a store of value. As the bankrate.com survey reported, cash appears to have replaced stocks and bonds as preferred long-term investments.
While it may be convenient to pin the blame on financial illiteracy, it is also true that people gravitate to cash in times of political unrest, war or financial crises.
Keeping in mind that rule number one in investing is "don't lose money," the perception of a riskier world will continue to drive the increased use of cash.
The holding costs of cash decline with interest rates. In a current environment of near zero interest rates, cash stuffed in the mattress isn't missing out on much in the way of return.
This simplifies the cash holding decision to, "Do I believe my home safe to be more secure than the bank?" Toss into the mix a country like Cyprus where deposits have been confiscated and the mattress begins to look like a safer choice.
Where interest rates remain low and banks are viewed as less than 100 percent secure, cash use will increase.
So, yes. Go ahead and add the preference for cash as a long-term investment vehicle to the growing list of reasons why cash will remain king.
Read more about trends and statistics.
This article has been republished from the Triton blog, atmAToM, with kind permission from Triton.
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