\n<\/p>\n
W<\/span>ho would want to hold cash? Most seasoned Monevator<\/em> readers know their way around far more exciting asset classes, after all.<\/p>\n For more than a few readers, I suspect your portfolio is your playground. You trade shares and reinvest your dividends with cheerful self-confidence.<\/p>\n You\u2019re the playful otters of personal finance! Yet cash doesn\u2019t seem to be a favourite toy.<\/p>\n And I get it. Cash is not exactly the most lucrative investment.<\/p>\n At best it\u2019s going to barely keep up with inflation over the long-term<\/a>.<\/p>\n At worst? Maybe it will continue to lose to inflation \u2013 it\u2019s already flunked that low bar in recent decades.<\/p>\n Which I admit is pretty rubbish, considering there\u2019s none of the potential with cash for the big gains that you can get with equities. Nor even the quite nice returns that your bonds might deliver in any given year.<\/p>\n No, compared to other assets cash lags far behind, like the teenage Squirrel<\/a><\/em> on a cross-country run.<\/p>\n I like cash though. Cash is my comfort blanket. So I believe there\u2019s a case for cash. <\/p>\n There may even be\u2026 a case for a case of cash!<\/p>\n Here are ten reasons I believe cash can be king<\/a> for even you investing otters out there.<\/p>\n Cash is most useful for unplanned expenses.\u00a0<\/p>\n If your roof blows off, your boiler explodes, you see the sports car you\u2019ve always wanted at a bargain price, or your cousin needs bail money in Torremolinos (what, just us?) then you don\u2019t want to rely on selling your shares, bonds, or other resources to raise money.<\/p>\n Being forced to sell assets at a time that doesn\u2019t suit you is a great way to derail your investment strategy.\u00a0Instead a cash pile can take the hit so your other holdings don\u2019t.<\/p>\n Cash is also useful as a lifeline in the event of major personal drama.<\/p>\n Emergency funds<\/a> don\u2019t just cover having to rebuild your garden wall when it gets demolished by a passing coach heading for Flamingoland<\/em>. (Again, just me?) There are bigger life-blips that have the potential to demolish all your plans.<\/p>\n The usual recommendation is to have six months of expenses in easy access cash accounts, in case something goes wrong in your life.<\/p>\n Unemployment is typically cited as the main money-related major risk. But I reckon illness and disability are underestimated hazards.<\/p>\n A six-month cash cushion gives you time, in theory, to get back on your feet if you lose your job.<\/p>\n Personally I\u2019m happier with a year\u2019s worth of cash\u00a0\u2013 just in case multiple things go wrong at once.<\/p>\n It never rains but it pours.<\/p>\n I love the term \u2018dry powder\u2019, which is sometimes used by corporations and private equity funds to describe their cash reserves. (Imagine them all sitting in their boardrooms dressed as American Civil War cosplayers, polishing their muskets and trying to get their flags to swish nicely.)<\/p>\n Anyway, \u2018dry powder\u2019 \u2013 aka holding cash \u2013 enables you to respond to opportunities. So you can access your cash and buy quickly if you suddenly encounter that once-in-a-lifetime stock opportunity or must-buy<\/a> market dip.<\/p>\n Stable, boring, doesn\u2019t do much\u2026 I had an ex like that.<\/p>\n But I absolutely love cash for its steadfastness. Unlike equities, with cash I know what returns I\u2019ll be getting and I can plan accordingly. There\u2019s still a little voice in my head that warns me the stock market is gambling (thank you, parents, for programming my subconscious), and cash keeps this little voice at bay.<\/p>\n You do, of course, have to keep an eye on the tax implications of going over the annual personal savings allowance<\/a>. This currently sits at a measly \u00a31,000 of interest if you\u2019re a basic-rate taxpayer, and \u00a3500 if you\u2019re in the higher-rate bracket.<\/p>\n Also, stability cuts both ways. The costs \u2013 those low expected returns \u2013\u00a0are stable, as well as the benefits.<\/p>\n This one is obvious, yes \u2013 but no less important for that.<\/p>\n Technically you can use other things to spend, like bitcoin, or even gold if you have one of those fancy gold spending cards<\/a>.<\/p>\n But people overwhelmingly buy their day-to-day stuff with cash. So if you\u2019re needing to buy food, clothes, petrol, toys, or anything else at all, you should have enough in your cash accounts to cover it.<\/p>\n There are credit cards, of course, but they deal in cash, too \u2013 future cash<\/a>.<\/p>\n If you\u2019re a family person, you\u2019ll be very aware of how much the Bank of Mum and Dad relies on cash.<\/p>\n Increasingly though I\u2019m also finding that the lesser-known Bank for<\/em> Mum and Dad runs on cash, because my older relatives don\u2019t have anything except for the equity in their houses.<\/p>\n This is one of my favourite reasons to hold cash \u2013 the simplicity.<\/p>\n We all have, and use, bank accounts. We all have access to free savings accounts. None of us needs any specialist knowledge to operate our cash accounts.<\/p>\n I know plenty of people who would never touch equities and who are wary of all other asset classes, but they are brilliant at juggling bank accounts<\/a>.\u00a0<\/p>\n Cash can be useful to anybody, anytime. It\u2019s not exactly idiot-proof, but it is mostly anxiety-proof.<\/p>\n I accept that if you\u2019re involved in elaborate active antics<\/a> in the stock market, you\u2019re not going to find anything particularly exciting about your cash accounts.<\/p>\n But some of us live a much more boring life. We\u2019re entertained by things like fixed-term accounts and flexible cash ISAs.\u00a0<\/p>\n And there\u2019s actually a lot you can do when you hold cash, in terms of adroitly moving it around and deploying it to your best advantage.\u00a0<\/p>\n Returns from cash are never going to be amazing, but they\u2019re potentially not to be sniffed at.<\/p>\n For example I\u2019m a big fan of paying into multiple regular saver accounts. These can have interest rates of near-double the rates of standard savings accounts.<\/p>\n It all adds up\u2026<\/p>\n In a world of volatility, when it sometimes seems that everything is falling down around our ears, cash is as about as close as we can get to guaranteed security.<\/p>\n (I work in education, where things are quite literally falling down\u2026)<\/p>\n Even if you\u2019re a mega-saver, it\u2019s not hard to negotiate the \u00a385,000 FSCS<\/a> protection limit on cash savings by opening an account with another bank if you look like you\u2019re approaching that amount. And that\u2019s all you need to do to keep your money safe. <\/p>\n Well, that and avoid scams of course.<\/p>\n As somebody who worries about pretty much everything, I appreciate this reassurance.<\/p>\n Yes, I know that we\u2019re moving towards a glorious cashless society. But you can still make a teenager\u2019s face light up by putting a couple of \u00a320 notes in their birthday card.\u00a0<\/p>\n Don\u2019t try telling me that vouchers are just as good. We both know they\u2019re not!<\/p>\n In fact you can do lots of fun things with physical cash.<\/p>\n And it\u2019s even possible to get some fun out of not<\/em> having it. An elderly relative of mine died recently, but before she went she whispered to her children that she\u2019d hidden money all over the house<\/em>.<\/p>\n The kids tore the place apart. Didn\u2019t find a penny!<\/p>\n I like to think of her looking down on them and having a good laugh at their expense.<\/p>\n The portability of cash rarely comes up in finance circles. But people have lives, and lives can be messy.<\/p>\n If you\u2019ve ever been trapped in a bad relationship you\u2019ll know how important it is to have a \u2018go bag\u2019 packed and ready, with copies of all your legal documents and plenty of cash. <\/p>\n Prepaid debit cards will do the job if you don\u2019t want to keep a stash of banknotes in your bag. But whatever form your cash comes in, have it ready to go.<\/p>\n Relationships aren\u2019t the only reason you might need some portable cash. If you live in a rough neighbourhood then again you might one day have to move fast.<\/p>\n Last year a nice police officer knocked on my door and told me to leave the house immediately, while the bomb squad rumbled down my street in an armoured truck.<\/p>\n I don\u2019t think well on my feet. I grabbed my child, five packets of tissues, some ginger biscuits, and a dog-eared copy of Ovid\u2019s Metamorphoses.<\/em>\u00a0<\/p>\n At least I remembered the kid.<\/p>\n Ever since then I\u2019ve had a bag ready to go \u2013 just in case. My bag holds everything I might need for an emergency night away.<\/p>\n Disaster \u2018preppers\u2019 have what they call \u2018bug-out bags\u2019 \u2013 although they\u2019re more likely to prefer barter goods and\/or gold coins over cash.<\/p>\n But they\u2019ll still tell you to keep a few weeks\u2019 worth of cash on hand, just in case the banks suffer a massive cyber-attack or the zombies get between you and the cashpoint.<\/p>\n Keep coins and small notes (no \u00a350s) in case everyone has to suddenly switch to cash and the shops run out of ready money.<\/p>\n Zombies, I believe, do not carry change.<\/p>\n All of the above relate to the practical uses of cash. But you can also hold cash to help balance a portfolio.<\/p>\n Holding cash is not the same as holding bonds<\/a>, but in some respects it has a similar function.<\/p>\n Make sure you create a distinction between \u2018portfolio cash\u2019 and \u2018emergency cash\u2019 (and also \u2018day-to-day cash\u2019). Otherwise you\u2019ll find yourself trying to use one pot to do at least two different things at once.<\/p>\n Maybe I just like to hold cash because I\u2019m a pretty new investor and I haven\u2019t quite found my feet. Or perhaps I like it because I\u2019ve been through some tough times with no safety net, and having plenty of cash to hand now makes me feel more confident.<\/p>\n I guess it\u2019s possible that in 20 years \u2013\u00a0sitting in my wing chair in the library of my castle\u00a0\u2013 I\u2019ll look back at this list and laugh at how cautious I was.<\/p>\n Who knows? Well, maybe you do.<\/p>\n If you\u2019re further down the FIRE<\/a> path than I am, has your perspective on cash changed since you started out? Do you still find space to hold cash? Or have you outgrown any dragon-like urge to hoard it?<\/p>\n Let us know in the comments below.<\/p>\nShow me the money<\/h2>\n
Reason #1: cash is liquid<\/a><\/h3>\n
#2: cash is liquid but also dry<\/h3>\n
#3: cash is stable<\/h3>\n
#4: cash is useful for spending<\/h3>\n
#5: cash is simple<\/h3>\n
#6: cash can be useful and interesting!<\/h3>\n
#7: cash can be protected<\/h3>\n
#8: physical cash can be uniquely useful<\/h3>\n
#9: cash is grabbable<\/h3>\n
#10: hold cash as a useful part of your portfolio<\/h3>\n
Cashing up<\/h2>\n