Cash is always a safe way to preserve wealth.

Five Misconceptions About Retirement

January 23, 2008

Myth:   Cash is always a safe way to preserve wealth.

Reality:   The notion “I am going to stick my money under the mattress” is not as safe a way to preserve your wealth as you might think.  Over time, inflation will erode the purchasing power of your dollar.

For example, if the average inflation rate in a given year is 3 percent and you keep a $100 bill under your pillow all year, your $100 can now only buy $97-worth of goods (in the previous year’s terms).

While it is prudent to always have several months’ worth of expenses held aside in cash reserves, remember that your real return excludes taxes and inflation, and if too many of your assets are in cash accounts earning little or no interest, or you may find you are “safely” losing the value of your money.

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