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Why cash is a silent wealth killer in the long term

Cash is “King”… but only in the short term!

Many investors view cash as the safest way to preserve wealth. But is holding cash really a smart long-term strategy? A closer look at the data reveals the opposite: Cash not only loses value over time due to inflation but also drastically underperforms compared to markets like the S&P 500.

The Hard Facts

Since 1928, cash has severely underperformed the S&P 500. The following data illustrates just how significant this underperformance is:

  • 1 Year: -8%
  • 5 Years: -54%
  • 10 Years: -158%
  • 30 Years: a staggering -2124%!

This means that holding cash over decades not only erodes your purchasing power but also causes you to miss out on enormous growth opportunities provided by equity markets.

Source: Creative Planning, Charlie Bilello

Why Cash Fails Long Term

Inflation – The Invisible Enemy
While your bank account balance might stay the same, inflation steadily reduces its purchasing power. Over the past 30 years, the value of the US dollar has fallen by over 54%, as highlighted in the second chart. In other words, what costs $100 today will likely cost significantly more in the future.

No Returns
Cash provides little to no returns, while the S&P 500 has delivered an average annual return of around 10% (before inflation). With dividends and price appreciation, the stock market allows wealth to grow significantly – an opportunity you forfeit by holding cash.

Source: Creative Planning, Charlie Bilello

The Stock Market: A Long-Term Winner

The second chart vividly illustrates the power of investing in equities. Over the past 30 years, the inflation-adjusted return of the S&P 500 is an impressive +960%! In contrast, the purchasing power of cash has eroded dramatically. This stark difference underscores why cash might be a “safe haven” in the short term, but equities are the clear winners in the long run.

What Should Investors Do?

  • Think Long Term: While the stock market can be volatile in the short term, it is indispensable for building wealth over time.
  • Diversify: Spread your assets across different investment classes to minimize risk and maximize opportunities.
  • Beat Inflation: Focus on growth-oriented assets like stocks to overcome the gradual erosion caused by inflation.

arvy’s takeaway

Cash might feel like “King,” but only in the short term. For those looking to build long-term wealth, the data is crystal clear: holding cash is a losing game, while a well-thought-out investment strategy in equities paves the way to success.

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