Is it really a waste to keep your money in cash?

Recent updates from the Waichi Sakurai household

Hello everyone, this is Waichi Sakurai.

Lately, watching my daughter, I've noticed she is gradually doing more things on her own.

Putting on her shoes.

Putting on her clothes.

Things I used to help her with until recently, she is now trying to do by herself, even if it takes time.

As a parent, I often feel the urge to lend a hand.

However, I feel that the time spent watching over her is also essential for her growth.

Asset formation is the same; perhaps it is important not to rush for answers just because you want to increase your wealth quickly, but rather to consider a pace that suits you.

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The claim that "keeping money in cash is a waste"

Recently, I have been hearing more often that:

"Keeping cash doesn't make it grow."

"Its value will diminish due to inflation."

Certainly, that way of thinking is not wrong.

In the long term, the stock market has grown.

History shows that investing assets has been more advantageous for wealth building than just holding cash.

That is why I personally agree with the idea of investing money that won't be used for a long time into stocks, such as the NASDAQ 100.

However, I don't believe that is the only answer.

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Cash is an asset that buys "peace of mind," not "returns"

I believe cash has another important role.

That is,

"Buying peace of mind."

For example, suppose the stock market drops by 30%.

What if you were using your living expenses to invest in stocks?

You might have to sell your assets at a lower price just to cover your living costs.

On the other hand, if you have a few years' worth of living expenses in cash,

"It's okay not to sell right now."

This option becomes available to you.

Cash is not just an asset for increasing money.

It is also an asset that protects your life's options.

—

Because you have cash, you can keep holding stocks

In a previous article,

I wrote about sequence risk.

The reason a market crash is scary while you are withdrawing funds is because

"you have to sell when you don't want to."

What eases that problem is

cash.
Because you have cash,

you can continue to hold

global stocks and

the NASDAQ 100

without panicking.

In other words,

cash and stocks are

not one or the other, but

a relationship that supports each other

is what I believe.

—


I don't think about

"how much cash should I hold?"

but rather

"how many years of peace of mind do I want to have?"

For example,

a few years' worth of living expenses.

Home repair costs.

Provisions for medical care or nursing care.

Money that will be used in the near future like this

should be kept as cash.
On the other hand,

money that is not planned to be used for over 10 years

should be invested in growth assets.
This is the concept of

"money to protect"

and "money to grow"

that I talked about before.

By separating these roles,

you can stay calm even if a crash occurs.
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Conclusion

In the world of investing,

it is sometimes said that "cash is just sleeping."

But I don't think so.

Cash gives you

the composure to stay calm even during a crash.

It gives you the peace of mind to protect your family.
And it leaves you with the option of

"not selling right now."

Asset formation is not just about increasing money.

It is about being able to continue living your own life regardless of the market conditions.

For that purpose, I believe cash is by no means a supporting role, but plays an important part.

—

Next time preview

"The NASDAQ 100 is attractive, but
should I really buy more if it crashes?"

Next time, I would like to write about my own thoughts on
"buying more during a crash,"
which is something many long-term investors worry about.