Why Cash Isn't Trash

Focus: MARKETS

Howard Gold Image Howard Gold Founder & President, GoldenEgg Investing

What mattered most was how long he stayed in the workforce and how much he saved during that time. Oh, yes, and earning a little money in retirement helps a lot.

The moral of this little exercise? You don’t need to take on too much risk to achieve financial security in retirement. In fact, cash and bonds are the underrated asset classes, which saved many a portfolio in last year’s market disaster and the previous “lost decade” for stocks.

“Cash and high-grade bonds are the true diversifiers,” says Richard E. Band, editor of Profitable Investing, an independent advisory service. He recommends people set aside enough to cover their first three to five years’ living expenses in retirement in cash or short-term bonds. That would be at least $180,000 in Joe Josephson’s case—almost 40% of his retirement assets.
 
Like Gambera, I also think you should have a nice chunk of your bond holdings in Treasury Inflation Protected Securities (TIPs) to protect you from those “bursts of inflation” when cash lags, as he puts it.

This kind of advice won’t make brokers rich, and it won’t make financial advisors comfortable: They’re still stuck in the mindset that you need a huge stock position to protect your wealth over time. That, of course, was a very, very bad idea for too many investors last year.

So, if you’re still licking your wounds (and who isn’t?), don’t let someone talk you into taking much more risk than you’re comfortable with. Sometimes cash is indeed king.

Howard R. Gold is executive editor of MoneyShow.com. The opinions in this column are his own.

 
Clicky