I lolled. Seriously? Now I will say there is one caveat to this. Cash can be king, but cash is not always king.
Why Cash Is Not Always King
Let me explain. Here is why cash is not always king. Put cash in your low yield savings account or better yet put it under your mattress and guess what happens? It will sit there and do nothing for you. It will be finite. It will not grow to produce more cash for you. At some point of spending, it will all be gone. It is the single worst thing you can do with your money. The second worst thing you could do would be to dig a hole and put it in the backyard!
Why Cash Can Be King
Now here is the caveat. Cash can be king. Why? Having a strong cash position can set you up in a good spot to invest in cash producing assets. If done right, your cash will multiply into more and more fruitful cash producing assets. Welcome to the idea of planting money trees and letting them sprout to fruitful income producing assets.
This is a powerful concept that is critical for you to understand. Cash is only king while in a liquid account until you identify another asset to buy. There are a few different ways to keep your capital liquid. I will speak to what I am currently doing, but there are many other ways to do this. Do your research to determine what will work best for you.
Option 1 – Liquid Index Fund Investing
Before detailing this one out, I want to point out this has high depending on market conditions. If you want to have liquid assets, index funds are definitely an option. The risk of having your “cash” reserves in an index fund will follow the market volatility. This could be a good or bad thing for you. If the market goes up, your money will grow and you will have more liquid capital to pull out. If the market goes down, your money will decrease and you will have less capital to invest.
Another thing to consider are the tax implications. Having your liquid assets in Index Funds could create unintended capital gains/losses. I have an article detailing out how I did some tax loss harvesting last year. Again, do your research on this before going down this path. High level, if the market went down and you sold some of your index funds, you would be able to write off losses. There are certain restrictions around it, but that is the high level gist. If the market went up, you would have to harvest gains when selling. Speak with a CPA if you want to get professional advice as I am not a CPA.
Option 2 – High Yield Savings Account
If you want to hold a true cash position, ensure it is in a High Yield Savings Account (HYSA). Don’t let it sit in an account earning you .03%. Don’t know what your account is earning, call your bank. A lot of the banks who have very bad rates will make it difficult for you to find out what rate you are earning. I made that mistake for five years, please don’t make it yourself. I have an entire article dedicated to this subject. I was able to increase the interest I was earning by 183x by making a simple switch. It took less than 10 minutes. Click the link here to read the full thing.
After some further explanation, what are your thoughts on how you view cash? Do you feel it is king?
Key Takeaways:
- Cash can be king. Cash can not be king as well. It all depends on how you are planning to use it.
- If you are sitting on literal cash, make sure it is in a High Yield Savings Account. I increased what I was earning by 183x by making a simple switch. Do your research on the different HYSA’s out there before switching.
- Always have a plan for your liquid assets if your goals are to create horizontal income streams.
