Investors Holding High Amounts of Cash: They’re “Safe” But Losing Ground to Inflation

Investors aren’t quite sure what they fear the most: inflation or the market.

A full 60% of investors claim to be worried about inflation, and 72% say it’s important to protect their portfolio against the effects of inflation.

Yet, baby boomer investors surveyed by MFS Investment Management are holding, on average, a whopping 26% of their portfolios in cash, even though cash has a negative return once inflation and taxes are factored in.

“Clients’ current and future purchasing power … is eroding. Investors are unaware of the ‘cost-of-comfort’ that comes with the perceived safety of cash—their cash is steadily losing value due to inflation,” says William Finnegan, senior managing director and head of U.S. retail marketing for MFS Investment management.

Financial Tip:  While everyone should hold some cash for emergencies or unexpected expenses, holding too much cash can actually undermine your financial safety by eroding your standard of living over time and causing you to lose out on the powers of compound returns.

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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