Is Cash King?
While the origin of “cash is king” is unclear, it is a phrase that became popularized following the global stock market crash of 1987 by Pehr G. Gyllenhammar, then CEO of Swedish car group Volvo.
Cash is flexible and can be likened to short term personal insurance against negative life circumstances. That is one reason advisors recommend clients hold 3-6 months of expenses in cash to mitigate job loss, etc.
“Money often costs too much.” – Ralph Waldo Emerson
The last decade has been abysmal for cash yields. If we consider the 1 month T-bill as our cash proxy, from 10/1/2012 – 9/30/2022, the annualized return was +0.61%. Meanwhile, inflation for the decade was +2.52% (actually below the long term trend of +2.9% per year since 1926).
So, over the last 10 years, the purchasing power of cash savers eroded as inflation crushed cash returns by about 1.91% per year.
In late 2022, we are in a vastly different environment with cash and inflation. So, what should you do with your excess cash or emergency fund? Where should you put it? In a regular savings account? A CD? Treasury bills?
Here are some rates we’re seeing as of 11/14/22. Check with your local bank or do your due diligence on how you can better put your cash to work.
Cash Management by Time Frame
Immediate Access (Access within 3 days)
Source: MaxMyInterest (Online banks)*
Short – Intermediate Term (3, 6, 9, 12 months)
T-Bills: Source Bloomberg as of 11/14/22
Long – I-Bonds (12 months+)
If you have questions or do not think you are optimizing your cash holdings, please feel free to reach out. We are always here as a resource for you and your loved ones.
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*Asset Dedication is not affiliated with any of the banks named and no referral relationship exists between Asset Dedication and any of the banks named.
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