What Does ‘Cash Is King’ Mean?

Erstudiostok / Getty Images/iStockphoto

“Cash is king” is a catchy slogan used to convey an important message. The very phrase “cash is king” of course suggests that cash is better than some other alternative, depending on the context in which it is used.

See: 3 Things You Must Do When Your Savings Reach $50,000

For example, in the investment world, “cash is king” can refer to cash being a way to earn more money than other investments, or perhaps that cash is safer than making other choices. In the business world, “cash is king” can refer to the power that companies with lots of cash have. For individuals, “cash is king” can ring true when making payments or when buying real estate.

But what exactly does “cash is king” mean, and why might it be important to you? Read on to learn more.

‘Cash Is King’ Definition

The literal definition of “cash is king” is that cash is better than whatever alternative you are comparing it to. It has a variety of uses, in personal finance, in the business world, and in the investment world. Of course, “cash is king” is never a cut-and-dried statement. For every proponent of the belief, there will be another countering it, with arguments over why cash is definitely not king. It’s up to each individual to determine whether or not “cash is king” rings true. Here are some examples of its most common uses.

‘Cash Is King’ in the Investment World

The expression “cash is king” is most often used in the investment world. It refers to times when cash seems to be the best available investment opportunity. Generally speaking, over the long run, cash is rarely the best asset class in which to be invested. As the safest option — in terms of protecting your money from loss — it also generally offers a poor return. However, sometimes that norm is spun on its head, and cash actually generates decent relative returns. Some argue that 2023 is such a time.

The reason for this is that the stock market — one of the most common alternative investment options to cash — is at a new all-time high. While some believe that means the market will continue going higher, others note that the S&P 500’s one-year gain of over 20% — and a market in which many stocks have jumped 50% or more — has gone too far, too fast. Meanwhile, the Federal Reserve has been pushing interest rates higher and higher in its quest to tame down the inflation rate.

The result is that three-month U.S. Treasury bills — generally considered the safest investment in the world — are yielding 5.07% as of June 18. When an investor can get a 5.07% return that is guaranteed by the federal government, that makes for a very attractive alternative to the U.S. stock market, especially one that some consider stretched in valuation. Whether or not you agree with this sentiment, it is the reason that some analysts are currently saying that in the investment world, cash is indeed king at the present time.

‘Cash Is King’ in Personal Finance

On a personal level, “cash is king” refers to the power that using cash holds over other forms of payment. One of the situations in which this is generally true is if you’re buying a house, particularly in the current market. With a limited inventory of homes on the market, sellers are looking for the best possible deal they can get while taking on the lowest amount of risk. Sellers generally prefer all-cash offers, as they don’t have to rely on a buyer securing financing. All-cash transactions also generally close faster, reducing the amount of time sellers have to wait for their money. 

Another situation in which “cash is king” in the personal finance world is when it comes to paying for day-to-day transactions. Some vendors only accept cash for payment, while others may charge a service fee of 3% to 5% or even more for credit card transactions. This can make cash king not only for its convenience but for the money it can save you.

Lastly, cash on hand can also help you survive an economic downturn, like a recession, or any personal financial crisis, ranging from the loss of your job to a medical emergency.

‘Cash Is King’ in the Business World

Just like with individuals, businesses that carry cash often have an advantage when it comes to pricing terms. Corporate cash buyers can often score deals that those using financing cannot, and they might even become preferred clients of certain vendors, entitling them to additional perks. 

“Cash is king” is definitely true if you’re speaking of the cash hoard that some companies store. Companies like Apple, with its net cash hoard of about $57 billion, and Berkshire Hathaway, with its hefty $130 billion, have immense power not only when it comes to negotiating deals but also in terms of timing. With that much cash in their corporate coffers, Apple and Berkshire Hathaway can afford to sit and wait until opportunities present themselves. While competitors might feel compelled to continually invest to get a leg up, these two cash-rich businesses can wait to swoop in during economic downturns, when others might not be cash-rich enough to take advantage. 

“Cash is king” can also matter to businesses in terms of mere survivability. When the COVID-19 pandemic swept through the economy, for example, many otherwise fundamentally sound companies had to ultimately shut down, as their cash burn rate was simply too high for the months and months that the pandemic continued. Those with significant cash in their accounts, however, not only survived through it all but also got to pick up the business that now-shuttered competitors left behind. 

The Bottom Line

There can be no certainty to the statement that “cash is king,” just like no one can assert the opposite with any certitude. Each individual, business owner or investor must make that determination on their own. But the concept behind the expression “cash is king” is that cash is the best available option in any given environment.

Information is accurate as of June 18, 2023.

Share This Article: