July 19, 2013
Our clients have a wide variety of investment goals. Some are looking to preserve wealth and generate income, others are looking for steady growth, while a few enjoy speculation. Regardless of their goals, no one likes to lose money. Although volatility is inevitable, and most investors understand that, it's never fun.
Some people get nervous at the thought of owning stocks, bonds or any investment with the potential to fluctuate in value. They may leave all of their savings in cash or money market. Don't get me wrong - being conservative is fine. Having all of your savings in cash is fine too, if that's what you truly want. You can always choose to work longer or save more to reach your goals if you'd rather not invest. The problem is the misconception that you can avoid losses by holding cash.
There is no investment immune from loss, including cash. This psychological pitfall is reinforced when people open up their bank statements and see that the value of their account is the same as it was last month. It's natural to think "I didn't earn anything, but I didn't lose anything either." Except: every year, your property taxes rise. You pay more for gas & electric service, and so on. You know this - it's called inflation. Yet some people ignore that fact and seek the false security of cash.
It makes sense to hold some cash no matter your investment posture. Holding a large cash position might be the right thing for you. But don't be fooled by the misconception that cash cannot lose value. In fact, cash is the only investment guaranteed to lose value thanks to inflation.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).