I’m a Financial Planning Expert: 3 Worst Things That Happen When You Hoard Cash
Written by
Heather Taylor
Edited by
Chris Cluff
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In times of economic uncertainty, some people may feel as though they should keep a lot of physical cash handy. However, this well-meaning attempt to protect money can backfire if you make it a habit to keep hoarding cash over a long period.
GOBankingRates spoke to two financial planning experts about the negative impacts holding onto too much money has on your net worth. These are the three worst things that happen when you hoard cash.
Cash Cannot Keep Up With Inflation
Antonio Alva, financial advisor at Northwestern Mutual, said financial hoarders will notice their stagnant cash does not keep up with inflation. According to Alva, the purchasing power of cash decreases over time as the cost of goods gets more expensive.
Khwan Hathai, CFP and founder of Epiphany Financial Therapy, uses the example of a financial hoarder who holds a substantial amount of cash for years. Hathai said this significantly reduces the real value of this money. “The same amount of money will be able to buy less in the future compared to what it can buy today.”
Missed Opportunities
Hoarding cash means missing out on considerable opportunities. Two of these include potential returns and compounding interest.
“When you hoard cash, you miss out on the potential returns you could have made from investing that money,” Hathai said. “This could be in stocks, bonds, real estate or any number of other investment vehicles.”
Those who hoard cash for several years also miss out on compounding interest, the process where the interest you earn on an investment also starts earning interest. Hathai uses the example of someone who invests $10,000 in a fund that gives an average annual return of 7%. This investment, when held for 30 years without adding any more money to it, can grow to over $76,000.
Those who hoard cash miss out on that potential growth.
Inability To Achieve Long-Term Financial Goals
The longer you hold onto a massive sum of cash, the more you’ll notice the significant impact it has on your financial future. Alva said many individuals find themselves without enough funds to retire and reduced purchasing power for their long-term goals.
It’s not too late to stop hoarding cash and treat cash as a financial tool. Alva recommends learning about qualified accounts, such as 401(k) plans, annuities and IRAs, where you can save and grow your money.
If you are uncertain about how to get started investing, you should consult a trusted financial advisor for guidance about what is best for you and your financial situation.
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