Cost of Cash
Cost of Cash Calculator
Keeping a stash of cash seems to be a natural human urge. Call it a “rainy day fund” or “emergency fund.” Whatever you call it, having some cash on hand for unforeseen situations is a good idea. But is holding excess cash a good idea? Some, yes; too much, no. Understand the cost of stuffing money in the mattress with our Osbon Labs Cost of Cash Calculator.
Cash is a wasting asset
Cash is attractive for its stability. But its short-term stability hides the longer term impact of inflation. Cash quietly and inexorably loses purchasing power. And it’s often hard to see the erosion until much later.
Inflation has been pretty tame recently, but holding cash has a real cost. The Cost of Cash Calculator shows you how much, based on the government reported Consumer Price Index (CPI).
Cash has a high opportunity cost
The other cost of cash is opportunity cost. The alternative investments to cash, such as stocks, bonds, real estate or gold, lack cash’s short-term stability but have much higher return potential. If you miss a big gain in other investments while holding cash, that’s called opportunity cost. The calculator quantifies that too via the S&P 500 return for whatever period you enter. (For more on this topic, seeHow Much Have You Been Paying To Own Your Cash?
The cost of cash calculator is most useful as a reminder that holding cash costs money. It’s natural to hold some non-investment cash. To achieve your required portfolio return (the return that ‘solves’ for your goals) we recommend any excess cash be invested in a diversified, customized index portfolio.
This article may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
Nothing in this article is intended to be or should be construed as individualized investment advice. All content is of a general nature. Individual investors should consult their investment adviser, accountant, and/or attorney for specifically tailored advice.
Any references to third-party data or opinions are listed for informational purposes only and have not been verified for accuracy by the Adviser. Adviser does not endorse the statements, services or performance of any third-party vendor without specifically assessing the suitability of a third-party to a client’s or a prospective client’s needs and objectives.
Calculator results are shown for illustrative purposes only. An investment cannot be made directly in an index. S&P 500 performance is shown for illustrative purposes only. It may or may not be held in client portfolios. Inflation rates change over time.
Calculation results will be affected by the rate of inflation, as well as index returns, both of which fluctuate over time.
Weekly Articles by Osbon Capital Management:
"*" indicates required fields