Putting your money in the securities market is risky yet profitable. Whereas, holding that cash is ineffectual.
“The market is really volatile, it is better if I keep the cash in my savings account or in my closet.” Does this sound like you? Most people think the same when it comes to investing their hard earned money in the stock market. Individuals are behind holding money rather than multiplying it.
Looking at the fluctuating nature of the market, many believe having money in their hands is the safest option to preserve money. In reality, wealth isn’t for holding. Alas, you will never make a profit or double your cash by holding that money. Also, holding cash back may result in inflation, which will affect everyone including you. So what benefit you will gain by preserving the cash – this is an important question to think upon.
Is it safer and profitable to keep your money in cash or invest it in the lucrative market to make a profit? Read on to find out.
Merits of Holding Cash
Holding the money benefits the holder when the stock market is in its bear phase. When the stock market is in negative phase, your cash stays safe, thus forbidding unnecessary losses. Your money will be safe because it is in liquid state and have nothing to do with market fluctuation or volatility.
Additionally, having the cash in your locker or fixed deposits can give you peace of mind. You can use the cash anytime unlike the stock market investment, which don’t even guarantee returns. However, there are always two sides of the same coin. With the benefits come demerits as well.
Demerits of Holding Cash
Regrettably, there is something known as inflation which is far huge and powerful that your little cash. No matter how much amount you have in your bank account or fixed deposits, inflation is going to hit you hard.
Don’t get duped by your thinking that just because you have money in your account and not in the stock market doesn’t mean you are safe. As the inflation rate goes up, taxes and bank charges will also increase. And you will surely lose, a small percent (if not all) of your cash in addition to loosing the purchasing power of the money day by day.
As the merits and demerits of both the options are clear, it’s time to make a right choice.
The Decision Time
Determining an asset allocation and sticking to it regardless of market condition and staggering your equity investments are the 2 successful strategies endorsed by most of the financial experts.
Some people invest when the market booms and sell when it is low. By doing so, they are doing opposite, selling low and buying high.
Whether you should buy stocks or hold cash is a debatable question that has no end. Since, it largely depends on your personal situation, which option suits you. However, I would recommend maintaining the asset allocation and staggering the equity investment strategy for every type of investor. Consider the merits and demerits of both the investments and make a sound decision.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at email@example.com