By James Saft
(Reuters) – Cash: it loses value every day, will permanently impair your portfolio if you hold it long enough, but just might be your most important allocation right now.
Cash is not an investment I love; in fact, it is lousy, for reasons I will shortly explain. What cash is, however, is an option on future opportunities; powder to be used when prices are more attractive later.
With the prices on almost everything else available so high, and the risks from monetary policy similarly high, cash, while trash today, can be recycled into something a lot more valuable tomorrow.
The problem with cash, of course, is that, while inflation is low, short-term interest rates are even lower, with a typical money market account yielding just 0.40 percent, according to bankrate.com, or 0.60 percent if you can scrape together $50,000.
That ensures that you are losing purchasing power every day; do it long enough and it adds up. Dylan Grice, of fund managers Edelweiss Holdings, points out that $100 held on deposit since 2009 has about $90 of purchasing power today.