On... Cash is Trash?

Cash is Trash. Cash is King. Which one is true?

Both actually, but perhaps at a different time frame and depends on the situation. Generally, you don't want to hold cash for a very long term. This is due to inflation. Official number of inflation ranges from 3 - 8%, but if I would guess, I would say its usually closer to 10%. Of course, inflation is a very personal thing and it depends from one individual to the next.

Thats where the saying cash is trash comes from. I first heard about it from Ray Dalio. Basically, what it means is if you put your money under the mattress, after a year, it will lose 10% of purchasing power (or whatever the inflation number you believe it to be). In the past, this is solved by putting your money in the bank and your bank interest will compensate for the lost of purchasing power. These days, bank interest is very close to 0%. So, you cannot solve the problem of inflation anymore and you're doomed to accept the lost of purchasing power over the years. That is why cash is trash!

Cash is king is a term I first heard of when I was still working a corporate job. It was at a townhall meeting. At the time, I still don't really know what it means. I picked up on finance rather late in life. Now, I would say cash is king refers to the optionality that cash provides. Its basically a call option on any asset class that you want to own. When prices dump, and is cheap enough, the worst thing that can happen is you do not have the cash to buy in.

In my opinion, cash is neither trash or king. It is actually both. In the long run, cash is trash because of the effects of inflation which erodes the buying power of your cash. But in the short to medium term, cash is king because it provides liquidity for you to invest or trade.

Just like everything in life, things are neither black or white, its usually grey. Always consider both sides of the argument. Whatever it is, always keep some cash handy!