Why cash is still king: investors take advantage of high interest rates and maximise flexibility (2024)

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Why cash is still king: investors take advantage of high interest rates and maximise flexibility? ›

Why cash is still king: investors take advantage of high interest rates and maximise flexibility. Cash is seen as the most attractive asset class moving into 2024, according to a new survey. But with interest rates forecast to drop, investors are likely to start reinvesting in risk assets soon.

Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.

Key Takeaways. Higher interest rates have gotten a bad rap, but over the long term, they may provide more income for savers and help investors allocate capital more efficiently. In a higher-rate environment, equity investors can seek opportunities in value-oriented and defensive sectors as well as international stocks.

"Cash is king" is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tools, such as stocks or bonds. This phrase is often used when prices in the securities market are high, and investors decide to save their cash for when prices are cheaper.

Investors benefit from the low-risk yield and high liquidity of cash investments. Although interest rates are low and a favorable interest rate can only be locked in temporarily, an investor can have access to their money within a short period of time.

While the phrase 'cash is king' has stood the test of time, it's not without its drawbacks. Holding too much cash could mean missed opportunities for investment. Moreover, in periods of high inflation, cash loses its purchasing power.

Gyllenhammar, then CEO of Swedish car group Volvo. The phrase was frequently used by billionaire property developer Alex Spanos, whose 2002 book, Sharing the Wealth: My Story, includes the phrase, used as a chapter title, and later adopted by another NFL team owner of Greek heritage, Jack Welch.

With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.

A higher interest rate environment can present challenges for the economy, which may slow business activity. This could potentially result in lower revenues and earnings for a corporation, which could be reflected in a lower stock price.

The financial sector generally experiences increased profitability during periods of high-interest rates. This is primarily because banks and financial institutions earn more from the spread between the interest they pay on deposits and the interest they charge on loans.

Why is cash not King? ›

Whilst cash provides short-term stability, optionality, and liquidity, it would be unwise for it to form a significant portion of any long-term investor's portfolio who is looking to grow their real wealth.

Although cash yields are currently very high compared to recent history, expectations are that over time, they will fall from current levels. ACG's 2024 Capital Market Assumptions project that cash will generate an average annual return of 2.7% over the next ten years and 3.5% over the next 30 years.

Liquidity is the most important factor in sustaining your small business operations and liquidity should be considered as the lifeblood of a company. When the capital (cash) is flowing, businesses can purchase inventory and pay expenses such as salaries. Maintaining liquidity helps your business in a long way.

Cash is available when you need it and, unlike stocks, there's little risk to principal, especially since most savings and checking accounts, CDs and money market deposit accounts (MMDAs) are FDIC-insured for up to $250,000 per depositor.

With cash, your spending is straightforward and there is less risk of identity theft. Ultimately, it's up to each individual to make the best decisions based on their financial health, what they are purchasing, and the risks they are willing to incur.

Cash use has been declining for years, but cash isn't close to going away. In 2022, there were a staggering 70 billion cash transactions, making it the third-most-common payment method.

This author says that's a false narrative. If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.

While the idea of money becoming entirely worthless in the future may be an extreme scenario, it is undeniable that the concept and forms of currency are evolving significantly. Digital currencies, cashless societies, environmental considerations, and the rise of DeFi are all factors shaping the future of money.

Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.