Cash is Still King!

by Glenn J. Downing, MBA, CFP®

There's a lot of financial stress out there - we hear it from our clients.  People who don't have a financial worry in the world are afraid.  And, given two high profile bank failures recently and the release of the Durham report last week, I suspect there are lots of shoes out there yet to drop.  

But let's keep this in mind:  the economy is not the government, and the government is not the economy.  And the corollary - The economy is not the stock market, and the stock market is not the economy. 

Cash is still king!

I know that, as an old dude who always carries cash (never know when you're going to want to tip someone), I realize that that is an uncommon practice - most people just tap (not even swiping anymore).  But what happens if a big hurricane hits, power is out for days, and there's no wifi?  Then, once you finally find an open store, how will you pay?  Not at all an unrealistic scenario.  We know this, living in SE Florida.      

My point:  keep some cash at home - a few hundred at least.  Enough to get you through an emergency.  Enough to last maybe a week at least.  Banks keep only enough cash on hand for their normal and usual transactions.  If you go requesting large cash withdrawals, you're likely to be told you'll have to arrange for it and come back tomorrow or the next day.  

Online Savings Accounts 

Most commercial banks still pay pennies on deposits.  Literally pennies.  But - online banks are now a great option.  American Express went into the banking business last year, and they now pay 3.9% for regular savings accounts - more for CDs.  And you'll find similar rates at Ally Bank, Capital One Bank, and others.  This isn't to say that traditional banks can't be competitive here - I'm just telling you about the rates I'm familiar with.  And yes, you do have FDIC insurance.  Please refer to my blogpost on that topic here. 

Great for your emergency fund

One of the biggest arguments we hear from clients about keeping a sum of money on hand for emergencies is that those funds are not productive.  To which I'll reply:  was your auto insurance productive during your last 6 months?  No crash means no payout.  So were those premium dollars unproductive?  Of course not - you got what you paid for - insurance.  Same with your emergency fund - you have a risk management tool in place and the peace of mind that comes with ready cash on hand.  

Reverse Disintermediation

Long word - but disintermediation refers to cash flows out of one asset and into another, particularly from banks into the stock market.  We saw this over the last several years as interest rates remained just off zero - people who were retired, who shouldn't be taking much risk with their investments, moved money from the bank into the stock market to make something - anything.  So they bought bonds.  Not bad if they held them to maturity, but the mark-to-market value of a bond portfolio got creamed as interest rates went up.  Now retirees have a good place to park cash and make a respectable return at the same time. 

Who doesn't take cash?

Miami Dade Transit.  One has to have paid for a pass that can be tapped.  The only other place that comes to mind right now is inflight on American Airlines.  I'm sure there are others.  But still, the world over, no one is going to turn down an American greenback.  

Questions?  Thoughts?

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