In the world of investing, few assets are as polarising as cash. On one hand, holding cash in an environment where interest rates lag inflation guarantees a loss of purchasing power. On the other hand, cash can be a powerful tactical tool for seizing opportunities, particularly in times of market distress.
This article was first published in The Australian on 24 April 2025.
When inflation outpaces the interest earned on cash holdings, however, the real value of money erodes. For instance, if inflation is running at 3 per cent annually while a savings account yields 1 per cent (or less if you make a withdrawal!), the purchasing power of that cash declines by 2 per cent annually. Do this for a decade, and in short order, you can only afford, at best, 20 per cent less than 10 years earlier.
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