Hoarding Cash Like Apple?

Are you sitting on a pile of cash? Does cash make you feel better or safer? Whatever your reason, I'd like to take you through the discussion of why you shouldn't hoard cash.
03/12/2015 09:48 am ET Updated May 12, 2015

Are you sitting on a pile of cash?

Does cash make you feel better or safer?

For some of you it might make you sleep better at night to have a pile of cash that you could ski down. Some people think the financial system might stop working. (Hmm, sounds familiar.)
Others hoard cash in case they need to get out of town quickly because of some disaster. Most investors stockpile moolah because of fear of losing it.

Whatever your reason, I'd like to take you through the discussion of why you shouldn't hoard cash.

  • Keep some. There's absolutely nothing wrong with with keeping cash on hand. You never know when it might come in handy. I've heard of people keeping30,000 to 50,000 in a safety deposit box. The largest cash reserve you should keep is 12 months worth of expenses. That will cover an illness, job loss or unexpected expense. There's no reason to make like Apple and hoard tens of thousands of dollars. There's no emergency that will require that sum of money.

  • Inflation is killing you. Unless your cash is earning at least the rate of inflation, currently at 3 percent, then you are losing purchasing power. I know, I know, it makes you feel all warm and snuggly inside to have that much cash. So if you aren't getting at least the rate of inflation, that cash is guaranteed to be worth less and less every day.
  • You could be missing out. "On what?" you ask. Making more money, of course! Yes, investing involves risk. Don't let a little fluctuation scare you away. If you have kept an adequate reserve sum or even hoarded a little in a secret wall safe, then you'll be fine. Investing will allow you to beat out inflation. What if the market does go way up? Do you want to miss out again? An easy solution is to invest your cash during market pullbacks!
  • You're not earning anything. Most Americans keep their savings at a local bank savings or money market account. Right now they are paying less than a tenth of a percent. I'm surprised that these banks haven't charged us interest yet! Anyhow, you should consider an online savings accounts. Right now, some of which are paying up to 1 percent, and that's a heck of a lot better.
  • A little warning: Don't keep large sums of cash at your home. There's no way to replace that pile of green in case of fire, theft or natural disaster. Most homeowners' insurance only covers about $200 in cash. Keep it in an FDIC-insured account or a safety deposit box at your bank or credit union. Not that this would happen to me, but what if you forgot where you hid it at your house?

    Uncertain about where to start? You might be hoarding that cash out of uncertainty. First I'd say get an education. Work with a qualified wealth advisor or financial planner. Work on how much cash reserve is really necessary, and develop an investment plan. Discover what your financial and life goals are. That will make it easier to get started investing your cash hoard.

    Are you hoarding cash? Uncertain what to do with it? I'd love to hear from you. If you liked my piece, feel free to subscribe by clicking on this fun little hyperlink, and you'll get all my financial ramblings via email every Friday, just in time for your Saturday-morning coffee!

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