We have all heard the saying that "Cash is King". At the same time, people always tell us that cash is thrash because it does not appreciate in value on its own. If you place cash in money markets / bank deposits, the returns are so dismal that it is no where near being able to keep up with inflation.
So, how should we as investors view cash?
Have you ever played a game where the character you are playing as receives a 'power-up' and becomes invincible for a limited period of time? This is the gaming equivalent of holding cash in the capital markets.
When you have cash and enter the capital markets, you are holding a 'power-up'. You have lots of power to buy anything you want to buy. Options are aplenty. You are king!
But this power does not stay forever. Your cash loses its power everyday as inflation catches up.
You have to do something with this power sooner or later for it to have some positive effect in your investment life.
So what is the best strategy to use when holding cash?
Like in the games, you have to be very careful when you receive a powerful power-up. You must not be rash and waste it on stuff which have little impact. You must use it to achieve a goal which had been escaping you when you had no power-up.
In the investment world, this means buying into an asset which provides a lot of value in terms of income yields and capital appreciation which comes from income/profit growth.
Wait for the right time to sink your teeth in. But don't wait indefintely.
Cash is King. But not forever.
Posted in: Investment
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