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Why Cash Is Not as Good as Gold

By LINDON, Utah - May 21, 2018 No Comments

Like nearly everyone else, I always keep some cash on hand. However, you should think twice before holding more than a few hundred dollars in cash. Paper money has unique risks and terrible long-term performance. Stocks and bonds have historically offered respectable returns, but they are not assets that you can use to buy goods and services. When it comes to emergency funds that you hold directly, the choice is between precious metals and paper money. After considering the facts, I think you will agree that cash is not as good as gold.

Gold significantly outperforms cash in the long-run. Paper dollars have a return of 0% every year, which almost never keeps up with inflation. Since 1971, gold has shown an average return of more than 7.5% per year. 7.5% does not sound like a large difference, but it adds up over time. Suppose that your parents or grandparents held $4,000 in cash at the end of 1971 and kept it all these years. Today it would be worth ... $4,000. If they had $4,000 worth of gold in 1971 and continued to hold it, it would be worth over $100,000 today! Your family is definitely better off with most of your emergency savings in precious metals.

If there is a disaster, you can lose your emergency cash at the worst possible time. What if there is a fire? When you hold cash, your savings can literally go up in smoke. Gold might melt, but it cannot be destroyed in a fire. Cash is also more vulnerable to floods, hurricanes, tornadoes, and other natural disasters. Believe it or not, paper money can also be eaten by insects. According to the BBC, termites actually ate through over $200,000 worth of cash at a bank in India in 2011. Paper money in the bank isn't something you can bank on. Gold is an element, so it is essentially indestructible.

With all of the hazards that cash faces, it should not be surprising that people are reluctant to insure it. It doesn't matter if the paper money is at home, in the mail, or even at a bank. Large sums of cash are also unfortunately associated with drug dealers. Unless you are in a cash-based business, it is going to be very difficult and expensive to get insurance for large amounts of cash. On the other hand, many reputable firms are willing to insure gold.

Whether you are interested in the return on capital or the return of capital, cash doesn't meet the gold standard. If you've been keeping money under the mattress all these years, it is time to trade up to precious metals.