Emily Gatchell


Associate Financial Strategist


Everyone prefers to avoid risk, and market volatility can feel scary. While it is tempting to respond to this type of volatility by relocating your eggs to what might seem like a more fortified nest, such as a bank, safe, or even just a high cash


level in your investment accounts, this fails to take into account another kind of risk—inflation.


We have all heard stories about how “back in the day,” you could go see a moving picture show for a dime or buy a new car for less than $5,000. What many fail to remember is back when things cost so little, most people made a fraction of what someone does today for the same job. As inflation has gone up, so have both prices and wages. What this means is over time, the number of dollars you have stuffed under your mattress might not change, but their purchasing power does.


to buy a house five years from now or to subsidize your retirement twenty years from now is “safe” just because it is in cash, think again.


Every type of investment carries some level of risk. Buying real estate, for instance, brings with it the risk of not having liquidity when you need cash. Investing in the stock market, on the other hand, provides liquidity, but carries the risk of market volatility. When looking at the cash in your wallet or your cash in the bank, it is easy to think there is no risk with that money. And, in the short term, risk is very low. Everyone should have an emergency fund that is easy to access and is not subject to large, short-term risks. But if you think that money you are planning on using


It is important seek a sound evaluation based upon your goals and objectives to make sure your eggs are in the


right basket or baskets.


Let’s say you have $10,000 that you plan on using in ten years. If inflation is 2%, and you leave your money in cash, you will functionally be losing 2% each year in purchasing power. Tat means your money will only be worth $8,170 in today’s dollars when you use it. If, instead, you invested it in the market and got a relatively conservative 5% rate of return for ten years, you would have almost doubled what you would have gotten


leaving it in the bank, resulting in $16,288 instead. Te eggs are growing!


None of that is to say that you should put all of your money into stocks, but it is important to seek a sound evaluation based upon your goals and objectives to make sure your eggs are in the right basket or baskets. If the winds of inflation pick up, make sure that fear of market volatility does not blind you to the risks of cash.


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