Source: BlackRock.
As you can see Stocks average a 9.8 percent return. However, after average inflation for one year it becomes 6.7% then when you combine taxes and inflation it brings your average return down to 4.5 percent.
In bonds it is 5.4 percent return and after inflation it is 2.3% average return. But, if these are taxable bonds then you only get .6 percent which is less than a 1% return.
Then you have cash (which means in a savings account or instrument like this. 3.5% might be your average return on a savings account but after inflation it is only .5 percent or 1/2 of 1 %. But after taxes it is -.8 percent so it is almost -1. percent.
So, this is the problem of being too heavy into cash because year on year you actually are losing money. So, even though you are gaining money on paper through interest it buys less and less if you were to spend it year after year. (we are talking about what one dollar actually buys year on year.)
Also, the above is an average year on year from 1926 to 2012 for all figures given.
Here is the whole article that I quoted this graph from if you want to read it:
Warren Buffett has had a remarkable track record of making timely and
smart investment choices. And while most of his advice to investors
revolves around the super-simple
ways you can get solid returns, one very important piece of advice from
Buffett is often overlooked. There is one long-term investment option
that the Oracle warns should never be in your portfolio: a hoard of
cash.
Crowd favoriteIn a recent report from Bankrate, a survey of Americans found that cash was the favorite long-term investment option for funds that were available for 10 years, with 26% of the respondents choosing cash investments. Only real estate came close to matching the popularity of cash, with 23% of people choosing that option for their hypothetical investment. Stocks came in fourth (after gold and other precious metals), at 12%.
Unfortunately for the majority of those surveyed, and the portion of the nation's population that they represent, cash is a very poor investment choice. Here's Mr. Buffett on the subject:
"The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time... Cash is a bad investment over time."
The King is deadIf you look at the long-term returns of cash versus other investment options, you'll see why Buffett thinks it's the worst investment you could choose:
Timing is everythingThis advice from Buffett should be heeded by more than just those years away from retirement. With Americans living longer, most retirees fear the same thing: running out of money. And while that fear can lead them into various "safer" investments, choosing an all-cash approach could be self-fulfilling prophecy. Retirees can live anywhere from 10-40 years beyond their retirement date, and unlike those still working, a fixed income can be very difficult to stretch across all sorts of expenses. So Buffett's advice is just as relevant to retirees as it is to 20-somethings.
Let's be clearThough Buffett warns against the use of cash as an investment, he does state that it's important to have some on hand.
"We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future, essentially."
Having an emergency fund or back-up savings account is not something Buffett would shake a finger at -- quite the opposite, in fact. But he would warn against letting your stash get too big. Otherwise, your money isn't working for you as you try to achieve your financial goals.
Though all the above is very true you also don't want to be caught without enough cash to weather any financial storm possible without having to borrow money. Because the interest on borrowing money as well as the loan itself is not that easy to come by these days. And fixed interest rates are even harder to come by. So, having enough cash to weather any potential storm is something to think about too, if you are doing long term planning.
Buffet since he is a billionaire can afford to think this way but anything less than a billionaire needs to maybe take a slightly different point of view which might cover literally any world situation that could potentially arise.
Here is the whole article that I quoted this graph from if you want to read it:
Sunday, January 12, 2014
Buffet says cash is the worst investment to own
Warren Buffett Says This Is the Worst Investment You Could Ever Own
Source: www.insidermonkey.com.
Crowd favoriteIn a recent report from Bankrate, a survey of Americans found that cash was the favorite long-term investment option for funds that were available for 10 years, with 26% of the respondents choosing cash investments. Only real estate came close to matching the popularity of cash, with 23% of people choosing that option for their hypothetical investment. Stocks came in fourth (after gold and other precious metals), at 12%.
Unfortunately for the majority of those surveyed, and the portion of the nation's population that they represent, cash is a very poor investment choice. Here's Mr. Buffett on the subject:
"The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time... Cash is a bad investment over time."
The King is deadIf you look at the long-term returns of cash versus other investment options, you'll see why Buffett thinks it's the worst investment you could choose:
Source: BlackRock.
Just as Buffett says, cash will be worth less over time because of
inflation. And even in developed economies, like the United States,
where inflation is low, the cost of goods and services still outpaces
the returns of cash investments. Some of the best savings account interest rates
are centered in online-based accounts, but they still only provide an
average of 0.85% in interest. While it's true that inflation will cut
down the value of any asset over time, cash is the only one that has
actually lost value -- as you can see in the chart above.Timing is everythingThis advice from Buffett should be heeded by more than just those years away from retirement. With Americans living longer, most retirees fear the same thing: running out of money. And while that fear can lead them into various "safer" investments, choosing an all-cash approach could be self-fulfilling prophecy. Retirees can live anywhere from 10-40 years beyond their retirement date, and unlike those still working, a fixed income can be very difficult to stretch across all sorts of expenses. So Buffett's advice is just as relevant to retirees as it is to 20-somethings.
Let's be clearThough Buffett warns against the use of cash as an investment, he does state that it's important to have some on hand.
"We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future, essentially."
Having an emergency fund or back-up savings account is not something Buffett would shake a finger at -- quite the opposite, in fact. But he would warn against letting your stash get too big. Otherwise, your money isn't working for you as you try to achieve your financial goals.
Warren Buffett has made billions through
his investing and he wants you to be able to invest like him. Through
the years, Buffett has offered up investing tips to shareholders of
Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.
end quote from:
http://www.fool.com/investing/general/2014/01/12/warren-buffett-says-this-is-the-worst-investment-y.aspxend quote from:
Though all the above is very true you also don't want to be caught without enough cash to weather any financial storm possible without having to borrow money. Because the interest on borrowing money as well as the loan itself is not that easy to come by these days. And fixed interest rates are even harder to come by. So, having enough cash to weather any potential storm is something to think about too, if you are doing long term planning.
Buffet since he is a billionaire can afford to think this way but anything less than a billionaire needs to maybe take a slightly different point of view which might cover literally any world situation that could potentially arise.
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