Why Hiding Money Under the Mattress isn’t the Best Idea

Uninvested money tends to lose value over time. Here’s why:

Inflation

Inflation refers to the (mostly gradual) increase in the price of goods and services, as time goes by. The same amount of money will buy fewer products or services in the future than it does right now. Put another way, inflation erodes the value of cash. Inflation rates vary both from year to year and also item to item. Coffee, for example, went from an average of $3.14 per pound in 1980 to $5.89 in 2022, while over the same period of time, the cost of a new Toyota Corolla went from $4,348 to $20,175. Taken as a whole, across decades, inflation has averaged 2-3%.

Purchasing Power

Inflation results in the loss of purchasing power as time passes. While the face value of cash held doesn’t change, its reach is diminished. This erosion means that what you can buy with $1000 today is more than what you’ll be able to buy with that same $1000 in the future.

Retaining Value

Investing offers a way to counter the effects of inflation while building wealth. Converting cash into investments, such as individual stocks or index funds, offers the potential to have returns outpace inflation. In the long term, this should preserve and will likely increase your purchasing power.

Relocation

Holding onto a “cash stash” can provide a sense of security. It is advisable to keep a portion of your money in cash and cash equivalents, where it will be immediately available and accessible. It’s equally important to remember that, statistically, money that isn’t invested will lose 2-3% of its purchasing power. Therefore, hiding money isn’t the best strategy for creating financial stability or independence.

Educate yourself about and explore investment opportunities so that you can make informed decisions based on your time horizon and risk tolerance. Consider enlisting the assistance of a professional, someone who can help align your investment portfolio and resource allocation strategy with your financial goals.

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