Aug 172017
 

Holding some cash for emergencies or opportunities is a sound idea. But having too much cash sitting around instead of putting the money into investments can be financially unwise.

Like most things in life, there is a cost component to cash – which is that cash usually produces lower returns than other asset classes such as stocks or bonds. One advantage of holding cash is to deflect volatility in a portfolio. But with a longer time horizon investors can manage volatility by using fixed income vehicles instead of cash. Long term corporate bonds from large, stable companies such as Enbridge pay 3.5% or higher annual returns, easily beating the interest earned in a savings account. πŸ™‚

According to investment management company, BlackRock, people who have allocated their money towards cash or cash equivalent assets actually lost purchasing power in the past. The value of their savings slowly whittled away at 0.8% per year on average between 1926 and 2014. This gives a whole new meaning to cash poor.

Holding cash for one or two years isn’t a big deal because the loss is very small. But over time it can build up to significant loss of buying power. The longer the investment time horizon, the less cash investors should consider holding. For a multi-decade horizon and high return objectives, which is the strategy I’m personally using, having excess cash savings would be a liability because it produces negative real returns. Sometimes the risk is not being aggressive enough with our investment plan and losing out on easy gains.

According to a survey by State Street’s Center for Applied Research, globally retail investors are holding 40% of their assets in cash. Uh oh. If someone has 60% of their portfolio in bonds, and the rest in cash then they could be making zero progress with their portfolio after inflation and tax.

If I’m sure I won’t touch my money until I retire, then I should take advantage of my long time horizon. This is why I don’t keep more than 1% of my net worth in cash, unless I’ve earmarked savings for a large, specific purchase. πŸ™‚

 

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Random Useless Fact

Oct 172014
 

The following is a guest post.

The days when you had to shell out thousands of dollars for a good cash register are gone. In their place and for less money, you can have a sleek cash drawer and a tablet computer with a card reader. Despite the minimal setup, the system works just as well as before. In fact, it’s often better, as the new systems like Shopify are faster and more efficient. These advances in technology might lead you to wonder when you will be able to set up a register with just the tablet and the card reader, without the receipt printer or bulky cash drawer. Those days aren’t here yet, sadly. For the moment, you still need all of these in order to make your checkout experience complete. Still, a cashless society is looming on the horizon and more than a few people are wondering what it will look like.

Added Security for Customers

14-10-cash-registerWhenever there’s a security breach online, people rush to point out that this is why cashless societies will never work. It’s just too easy to steal someone’s information, right? This argument only holds up if you forget that people get mugged and banks get robbed. Your cash isn’t safe, either. If someone steals your money, you can’t report it to a company and expect to get all of that back again. You can’t track where the thieves went after taking your check; there’s nothing for you to do but regret that you ever went down that dark alley or trusted that bank. Credit card theft is a very serious issue, but a person who can show that their identity and their cards were stolen stands a good chance of filing their claims and disputing the charges. With over 11 million cases of identity theft annually, according to Statistic Brain, there are systems in place to deal with these damages.

Tipping Doesn’t Vanish

One of the things that people are afraid of in a cashless society is that tipping will die. When you’re paying for your latte with a swipe of your card, how are you going to drop your change into the tip jar? Digital tipping is always an option, but most people think that working out how much to tip on a small purchase like a cup of coffee or a sandwich just wouldn’t be worth it. However, when tipping is made easier, then the amount that people tip digitally versus with cash actually rises. When taxi drivers in New York City started adopting a mode of tipping that let the customer check a box on a touchscreen payment device to add 10-30% to their bills, they saw their tips rise drastically. The average before digital tips was only 10%, and the average afterwards was 22%, according to The New York Times. That’s a huge boost! If this carries over to other industries, then ease and convenience of tipping might lead to better salaries for everyone from baristas and waitresses to bellhops and chauffeurs. Not to mention the fact that it will cut out the honest mistakes that people sometimes make when trying to find the proper 20% tip on an eight-person check.

Paperless Saves Business Expenses

Paperless is the way to go for many businesses looking to save costs. If you’re looking for the most expensive liquid in the office you can skip that water cooler that everyone loves and head straight to the printer. At an average of $3,330.14 cents per gallon according to Techopedia, printer ink is the most expensive reoccurring expense in your business. When you don’t have to print every receipt, you save money. When you don’t have to print out every report and checklist, you save money. When someone pays with cash, the only way for them to record their purchase is to get a receipt from you. When they’re willing to go paperless, you can either email their receipt to them or they can just check their debit or credit card statement online. The itemized lists will tell them exactly where that $50 they meant to save got away from them. This level of ease provides customers with more security and an easier way to plan their budget. No one wants to sit down with a ledger and a month’s worth of lunch receipts, bills, and payments made and missed when they can set everything up online and read the printout. You’re saving time and your customers are saving money.

Budgeting Advice Is the Only Thing That Stands in Its Way

Perhaps partly because mental math will put the brakes on your spending spree, the only place you really see someone advocating to pay cash these days is in the advice of budgeting analysts. There’s nothing to stop you from going over budget like literally not having the money to pay for something. But even electronic money can be budgeted, so when we do become a cashless society, the same principles will still apply.

Nov 222011
 

Here’s an extensive research on xkcd about how much things cost, including where government is spending tax payer’s money. Β There is A LOT of information in there. Below, I’ve copied some of the more interesting facts to me…

– Median household net income in the States = $104.12 per dayΒ (A bit lower than I expected.)
– Cell phone avg monthly fee = $77.36 (Seems a bit high, I pay less than $20 for mine)
– Annual cost of cat/dog ownership = $670/$695 (cheaper than owning a rabbit)
– Typical 2007 CEO income = $5,420 per hour (Yes, PER HOUR!)
– Estimated one-year Hogwarts cost (incl. tuition) = $43,000 (That’s a bargain considering what you will learn there :0)

– Flower cost for William and Kate’s wedding = $800,000 (Imagine planning a wedding of that scale)
– Annual cost to run Wikipedia = $18.5 Million (I had no idea)
– Amount needed to live comfortably off investments = $4 Million (Depends on the individual/household)
– Most expensive car soldΒ (1957 Ferrari 250) = $16.4 Million (Who would pay that much for such an old car?)
– Treskilling Yellow postage stamp = $83.7 Million = (Wish I was a stamp collector..)

– Mona Lisa assessed value = $731 Million (Art is a good investment)
– Mitt Romney’s net worth = $210 Million (I would retire if I were him)
– One F-22 Raptor = $154.5 Million (What an accomplishment for the engineers who worked on these)
– One B-2 Bomber = $2.5 BillionΒ (0.o)

– The US’s 400 richest people have a greater combined wealth than the poorest 50% of the country (But some rich people still think they don’t have enough)
– A human life is valued at $8.4 million (How does one go about calculating this anyway?)
– Size of the derivatives market = $439 Trillion (Scary number, considering how un-regulated derivatives are)
– Total US public debt = $10.2 Trillion (That’s about $33,000 per person)
– Total Canadian public debt = $1.1 Trillion (Also about $33,000 per person, coincidence?)
– Total economic production of the human race so far $2.4 Quadrillion (That’s $2,400,000,000,000,000)