Are You Sitting On Too Much Cash?

A Nickel Ain’t Worth A Dime Anymore

Yogi Berra was one of the all-time greats at baseball. A WWII veteran, he was an 18x All-Star and won ten World Series playing for the New York Yankees – enough said! His No. 8 jersey was retired alongside the other Yankee greats and he was inducted into the Major League Baseball Hall of Fame in 1972.

Outside of his playing career, he became famous for his “Yogi-isms” which were phrases that often seemed to contradict themselves or were redundantly pithy or paradoxical in nature. Whether it was giving general advice or making an appearance on a TV commercial, Yogi was famous for these sayings. One of these phrases that he is credited to have originated is:

“A nickel ain’t worth a dime anymore.” While seemingly paradoxical in nature, there is a lot of truth to the statement, especially in the context of inflation.

Inflation

Inflation eats away at the purchasing power of your money. We see it in two forms: (1) prices of goods go up faster than your income or (2) prices of goods stay flat, but you get less of what you buy (sometimes jokingly called “shrinkflation”). For example, the other week I noticed that the plastic bags we buy now come with 125 bags per box. A few months ago it was 145 bags per box. Same brand, same box size, but I now get fewer bags. However you look at it, plastic bag inflation is up about 15% from a few months ago.

In our zero-interest rate environment, and with inflation seemingly higher than normal for many goods or services, sitting on too much cash can devastate your purchasing power.

Are You Sitting on Too Much Cash?

Are you sitting on too much cash? How much cash is too much cash? While where to invest is a necessary conversation, let’s first figure out if you are sitting on too much cash.

Here is the framework I like to use to help answer this question:

1. Does your income from all sources cover your annual expenses?
2. Do you have cash available in an emergency fund in case you lose any of this income for a short period of time?
3. Do you have cash available for any one-time big purchases earmarked for the coming year?
4. If you answered Yes to questions 1-3, then any excess above and beyond these savings should probably be invested in some manner to at least try to keep up with inflation.

This is simply a starting point and a framework. Where to invest your excess cash is the next conversation. If you think you are sitting on too much cash, or if you are on Step 4 and have excess to invest, then we should talk. Yogi Berra has never been more accurate, because truly, a nickel ain’t worth a dime anymore. With inflation in full force, a sound strategy around excess cash should be top of mind for everyone. Don’t let inflation devastate your purchasing power.

Feedback from these newsletters is not only welcomed but encouraged. If you have any questions or comments, please email me at jeff@fidelis-wealth.com. If you think this might be useful to any of your friends or family, feel free to forward it to them.