“Inflation is when you pay fifteen dollars for a ten dollar haircut you used to get for five dollars when you had hair.” — Sam Ewing
Inflation is high.
Should you hold cash or should you invest?
As Grant Cardone says: Go broke with your investments.
Keep investing the cash until you have no more cash and continue to live off your cash flow.
So you can see on this chart, we’re having inflation.
The Fed is saying it’s not transitory.
It’s going to keep going up.
Depending who you talk to, inflation could be anywhere from 7-15%.
What happens if there’s a crash in assets?
What happens if real estate or crypto or gold starts to go down?
Let’s go over these concerns in three easy steps.
1. Cash is Trash
Robert Kiosaki says cash is trash.
What does he mean by that?
A lot of cash would be awesome.
Why would he say cash is trash?
If you look at the benefits and the cost of holding long-term cash, it is very negative.
It’s a common saying that back in the fifties, a hamburger only cost five cents and now it’s five dollars.
Does the hamburger actually cost more?
Or is the value of our paper currency worth less?
It’s the latter!
It’s been said the dollar has lost 98% of its value in the last 80-100 years.
Holding cash long term is not a good idea.
Cash will not be worthless, but it will be worth less over time.
As I said, we don’t exactly know where inflation is right now.
It could be above 15% or right around there.
According to shadow stats, some costs have gone up 30% year after year.
There’s other costs such as building costs that have gone up 200-300%.
Inflation is high and no matter what the government says, it could be going higher and higher.
You’re losing the value of your purchasing power.
If you have $100,000 in the bank, you could be losing $7,000-$15,000 a year.
That is painful!
My friend Russell Gray talks about an alternative.
You take your cash and you buy stuff.
Go from cash to asset to cash flow.
That’s why Robert Kiosaki is saying cash is trash when compared to buying an asset that has some hedge protection.
Not every asset has this.
There are some that are very volatile.
Not every type of real estate or business will have inflation protection built in.
The question is: How much cash do you really need?
2. Cash is King
I just said that cash is trash.
How can cash be trash and also be king?
In 2008 there was an economic crash.
We all remember what happened with real estate prices and the stock market.
In that time there were some significant discounts given, particularly in real estate.
I had friends who bought single family houses for $30,000 in the Phoenix area that are probably worth 10x or more now.
How did they get these deals?
One of the ways is they paid in cash.
When things go down and credit tightens up, it can be very difficult to get deals.
If you store some cash, it can act as dry powder.
If there are opportunities, you’ll be able to take advantage of them.
There are also credit cycles.
Sometimes liquidity and credit is very easy, like right now.
There are other times when having cash available can be really good.
It balances out!
Cash is trash in the long term, but also having some cash available can be really good.
Warren Buffet has over $150 billion right now in cash, which is crazy!
My friends George Gammon and Rick Rule had them on a recent panel.
They’ve said they are storing cash so if things do go down, they have liquidity to go into the market.
That’s something I’m doing as well.
But how much cash should you put away?
3. How Much Cash?
How much cash do you actually need?
Unless you’re talking with your investment advisor, most people can’t tell you this.
If you are talking with your investment advisor, they may be more conservative in their estimates than what you want.
I’m putting about 10% of my net worth in cash so it’s available when there’s an opportunity.
I also have my investable assets.
My friend Russell Gray talks about the precious equity strategy.
You buy physical gold from a dealer and you have it shipped to a vault that will store it for you.
There’s a place in Nevada, called TDS Vaults.
They will store the gold for you at a small fee.
After that, you can borrow against the gold like a HELOC.
So let’s say I have $100,000 in physical gold there.
I can borrow $75,000 right now at around 6.5% with interest only.
Like a HELOC loan, this does not affect my credit.
I can use the money and return it when I’m done.
The downside is if the price of gold goes down, you can potentially get a margin call and have to buy more.
I personally love gold.
I would want to own more gold if gold goes down.
To do that, I need to have some cash position.
The debate is: How much do you need?
Do you need more or less cash?
You have to figure that out for yourself.
Either way, we’ve gone over some good considerations to make.
Now I want to hear from you!
For you, is cash trash or is cash king?
What percentage of your wealth are you putting into cash?
Leave a comment below to help grow our community.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.