The Dangers of Cash

[24601NoMore]

My CD's earn $ each day...seems better than many bond categories currently. The more years of cash saved the more secure you'll feel. Invest part of portfolio in equities as a hedge against inflation.

Many retirees I know feel better having most of their $ in cash.

This retiree DID feel better having a good chunk of our portfolio in Cash - up until last year when rates went to basically zero and I had no-where to put maturing CDs.

I see enough clear signs that inflation is not "transitory" (counter to what's being said) so am reasonably concerned at this point about loss in purchasing power of said cash holdings..

Unfortunately, I also think equities are insanely over-valued..and as this week showed all too clearly, can move downward quickly. (What's the old saying.."stocks take the stairs up and the elevator down").

At this point in life, I have no desire to be on the elevator down again so for that reason have kept more than a few years expenses in cash..but with inflation now back, potentially for quite some time..there truly does not seem to be ANY port in the storm..

 

[chassis]

I think @CaptTom's concern was that the boogeyman, men in black helicopters, or a divorce lawyer would take his money. Not inflation. Is that what everyone else is getting from the original post?

Not much can be done about boogeymen or guys in helicopters. Divorce, sadly, is its own topic.

Inflation is something that can be dealt with, and is not that big of a deal.

 

[lordjust]

I think cash is safer than a house or 401K. Say a Devious person is sued for liable by some politician.
Chance of a judgement is very high and it will be for a lot.

A Devious person could withdraw all their cash and bury it, this Devious person cannot sell their house in a day (well maybe in this market ) and if they cash out their 401K the tax rate will be highest possible.

Cash is great because if the politician doesn't sue.
Devious person can dig up the money and put it back into CDs, at a low cost.

+1
Thats funny "someone" gave my friend that same advice regarding a judgment recently.

 

[CaptTom]

I think @CaptTom's concern was that the boogeyman, men in black helicopters, or a divorce lawyer would take his money. Not inflation.

The most realistic risk I can come up with is this: after a very expensive operation, my health insurance company decides I failed to dot an "i" or cross a "t" on my initial application and denies the claim. It's a self-insured plan and I know the company I retired from would do something like that if they could. They're always contracting firms to do audits and try to identify employees and retirees they can boot off the insurance program.

Boogeymen, black helicopters and divorce lawyers aren't really on the list (I hope!) I don't even own a tin-foil hat.

Inflation is a very real risk for me (fixed pension) but I think I've mitigated that to the extent possible. That wasn't really the question, although it's arguably a good reason to reconsider a large cash position.

 

[Markola]

..there truly does not seem to be ANY port in the storm..

I keep hearing smart people say put some in 30 year treasuries. Personally, I try to take a long term view,mbe exposed to all securities on the planet brought index funds and then hold, so YMMV.

 

[RunningBum]

The most realistic risk I can come up with is this: after a very expensive operation, my health insurance company decides I failed to dot an "i" or cross a "t" on my initial application and denies the claim. It's a self-insured plan and I know the company I retired from would do something like that if they could. They're always contracting firms to do audits and try to identify employees and retirees they can boot off the insurance program.

How does this relate in any way to holding cash? You were asked this earlier in the thread.

 

[Zathras]

How does this relate in any way to holding cash? You were asked this earlier in the thread.

As stated in the OP, is cash easier to protect/hide from corporations if he incurs a huge expense he can’t afford.
IMO, cash is no safer than other assets.
To me, it is a bit tin-foil hat. However, I believe medical bills are still one of the biggest reasons for bankruptcy.

Best option for the OP’s efforts, IMO, is to work towards improving our miserable excuse for a healthcare system.

 

[Dash man]

401ks (and IRAs and Pensions) are not protected in divorce... at least not from what I've seen.

They’re also not protected from the IRS or from child support.

 

[pb4uski]

The most realistic risk I can come up with is this: after a very expensive operation, my health insurance company decides I failed to dot an "i" or cross a "t" on my initial application and denies the claim. It's a self-insured plan and I know the company I retired from would do something like that if they could. They're always contracting firms to do audits and try to identify employees and retirees they can boot off the insurance program. ...

But if you were all stocks, all bonds or all cash it wouldn't manke any difference to the risk of something like this happening... it's not line the insurance program is going to say... oh, you have a bunch of cash so pay us.... or oh, you are all stocks, no worries. They will expect payment either way so being in cash doesn't make a difference.

 

[NW-Bound]

... They will expect payment either way so being in cash doesn't make a difference.

How about the cash buried in the backyard that they don't know about?

Or the solid-gold door knobs like those that RobbieB has in his house.

PS. Gotta be careful not to slam the doors with the solid-gold door knobs. The heavy door knobs would just fly off the door.

 

[ncbill]

For medical billing issues you'll want to use that cash to hire a lawyer...they'll know best whether to appeal or just pay.

 

[Drake3287]

I'm another that has no worries about having a large amount of cash, especially the part about being sued or losing health insurance. At least for me, it's not even a concern, that's why I have insurance and a good medical plan.

Like others here I'm sure, I have enough cash stashed in currently low earning CD's to make your head spin. For me, after I hit my savings goal of investments and savings, I simply started socking away cash for no real reason other than not wanting to waste it or run the risk in the stock market anymore.

Do what ever makes you comfortable and maybe makes you sleep better at night. No right or wrong answer.

 

[chassis]

@CaptTom would you agree that you desire liquidity, more than actual bank cash?

If it's liquidity you desire, you can hold bank cash, plus the entire gamut of financial assets in a taxable account. This insulates you from inflation, and exposes you to market risk. I think pb4uski is suggesting something like this.

What is your personal calculus on inflation risk vs market risk? Which is scarier? The goal would be to have funds available to pay for the medical procedure that was denied due to typographical error in the application.

 

[CaptTom]

Big picture answer I'm getting is, no, there's no particular exposure I hadn't thought of by keeping cash.

My specific example (the only one I could think of) was a huge uninsured medical bill, for which they could take all my cash but I thought (maybe incorrectly) they could not take a 401k, home or automobile, at least until I die. I was thinking there may be other nuances I wasn't aware of. It doesn't sound like there are.

I'll probably stay the course. Yes, if there were better medical options I'd be in line for them. Short of voting, and not getting sick, there's not much I can do to fix that mess. Although I may look to see what Amazon has in gold doorknobs.

 

[chassis]

@CaptTom the notion of a Swiss bank account again is suggested. Serious question - have you investigated whether or not you are able to obtain an offshore (legal) bank account? Does that avenue interest you?

 

[CaptTom]

@CaptTom would you agree that you desire liquidity, more than actual bank cash?

If it's liquidity you desire, you can hold bank cash, plus the entire gamut of financial assets in a taxable account. This insulates you from inflation, and exposes you to market risk. I think pb4uski is suggesting something like this.

What is your personal calculus on inflation risk vs market risk? Which is scarier? The goal would be to have funds available to pay for the medical procedure that was denied due to typographical error in the application.

We were posting at the same time. I'll try to answer...

Yes, I think liquidity is the goal for keeping cash.

Personally, inflation is the one variable I worry about most. Because of that, I factored in a very conservative (high) rate. After five years of almost no inflation, I'm ahead right now. But that leaves me waiting for the other shoe to drop. My crystal ball isn't working all that well, so it's foolish to have an opinion. But that doesn't mean I can't worry about the sudden up-tick we're seeing. Again, all I can do is stay the course, and trust my plan.

 

[Al in Ohio]

Any decent lawyer can drain your net worth and he/she doesn’t really care if it’s in cash or investments, property, or whatever. Its all fair game.

 

[Badger]

Is there a way that a revocable trust could help protect assets? If so then which would be covered - IRA, taxable investments, cash, etc.?



Cheers!

 

[ncbill]

Any decent lawyer can drain your net worth and he/she doesn’t really care if it’s in cash or investments, property, or whatever. Its all fair game.

That's what umbrella insurance is for...seven figures to pay the plaintiff to go away...claims remain rare enough that that type of insurance is inexpensive.

 

[chassis]

We were posting at the same time. I'll try to answer...

Yes, I think liquidity is the goal for keeping cash.

Personally, inflation is the one variable I worry about most. Because of that, I factored in a very conservative (high) rate. After five years of almost no inflation, I'm ahead right now. But that leaves me waiting for the other shoe to drop. My crystal ball isn't working all that well, so it's foolish to have an opinion. But that doesn't mean I can't worry about the sudden up-tick we're seeing. Again, all I can do is stay the course, and trust my plan.

@CaptTom if inflation is the variable you worry about most, all the more reason to invest in equities. Cash will be trash in a high inflation environment.

 

[Al in Ohio]

That's what umbrella insurance is for...seven figures to pay the plaintiff to go away...claims remain rare enough that that type of insurance is inexpensive.

Just pointing out that being heavy in cash doesn’t attract lawsuits any more or less.

 

[Koolau]

@CaptTom if inflation is the variable you worry about most, all the more reason to invest in equities. Cash will be trash in a high inflation environment.

I'm no expert and I didn't find the chart I was looking for. I DID live through the stagflation of the mid 70's. During some periods of that era, EVERYTHING was trash. YMMV