Cash is Trash vs Cash is King - What say you??

Question

I read this article the other day and thought the different perspectives were interesting: Ray Dalio warns 'cash is trash' as Warren Buffett sits on $128 billion.

As the title of the article suggests, you basically have Ray Dalio (billionaire founder of the world's largest hedge fund) arguing that "cash is trash" and warning investors against sitting on large amounts of cash, the value of which could get eroded away over time.  Not to mention how well the stock market has been doing lately: The S&P 500 surged 29% in 2019, its best return since 2013.

In previous discussions on here, I've noticed that some people can be quite opposed to anything other than investing real estate (specifically the stock market, traditional retirement accounts, etc). However, I think Ray's point is don't hoard cash and be diversified in what you invest in (he even mentions investing in gold).

On the other hand, you have Warren Buffett (widely regarded as one of the most successful investors of all time and one of the richest people in the world) sitting on $128 billion in cash and saying he'll "never risk getting caught short of cash". Pretty much the complete opposite of what Ray Dalio would recommend.

There you have it. Two completely contrasting viewpoints about what to do with your money in this market from two men who I don't think anyone can dispute both know how to make money.

So which side of the fence do you tend to lean on? Is cash trash? Or is it king?

Joe P. · Answer

Billionaires don't have to worry about an unexpected medical bill bringing you right past your deductible and out of pocket max in one shot (as we did in JANUARY last year...thanks to a hospital visit. A year's worth of medical payments due 30 days after hospitalization).

Billionaires don't have to worry about a hot water replacement in January, costing you $800. Or needing a new boiler, costing you $3000. Or maybe your car needs repairs or bites the dust, and now you need it.

Billionaires don't have to worry about unexpected corporate turnover, costing you your job.

If billionaires want to go on TV and say cash is stupid, let them. They probably have .01% cash on hand of their networth (if you're a billionaire, 10 million is 1% of your networth).

I take what information I need about billionaires -- they are most likely setting, propping up, or destroying markets. That's the information you need from them.

Otherwise, they're gasbags with too much money trying to tell us peons how to live.

Sure, I'm an investor, I believe in free markets, getting paid what you're worth based on your skills, education is important, everything is a financial decision, etc. But I also hear how like 8000 people have more than 4 billion combined, and that's a world I don't necessarily like or think is very fair. So without getting too political, thank you Warren Buffett, thank you Ray Dalio, but you both and any other billionaire telling me how to live my life, can go pound sand.

Mike Cumbie · Answer

I don't think it is ever a bad idea to have a "nest egg" in a safe in cold hard cash. I also don't think it hurts to have 6 months of "cash reserves" in a bank. Of course I am just a tad short of having the worries that those guys are having. Oh gee my $128 Billion is eroding over time....

David Martin · Answer

For sake of clarity, this $128Bn is cash (or cash equivalents in accounting terms) owned by Berkshire Hathaway, not the individual himself, and really isn't that exciting of a number when you consider a company like Apple, for example, is holding nearly triple this amount in CCE's. As an investor, I think the main thing you should take away from this is "why would a person known historically for being a consistent value investor begin to start creating reserves of this amount?", and I think the likely answer is that he may be feeling that the market is near a peak, and he's collecting the proverbial dry powder in preparation to capitalize on some targeted oversold acquisitions during the early parts of a market drop when panic selling can exist. Imagine the market in general assuming "Here comes another 2008!" and just bailing out as fast as possible.

All I take from this is some showboating from a hedge fund manager trying to position himself as smarter to drum up business by giving someone who is known, literally worldwide, for the statement "Be fearful when others are greedy, and be greedy when others are fearful", a hard time for literally putting his money where is mouth is and doing what he's known to do.

Kyle J. · Answer

@Joe P.  Thanks for adding to the discussion and for your perspectives.  For what it's worth, my takeaway from the article wasn't whether to save or invest in stocks (or whatever investment vehicle) the only money that you have set aside for medical bills, reserves on properties to cover repairs/capital expenditures, or any other living expenses or necessities that may come up in our personal lives or businesses.

Rather, I think this is more about discretionary investment income that you have the choice whether to just let sit in a savings account earning next to nothing so that you don't miss an opportunity when it presents itself.  Or, if you're not so concerned about having money immediately available and potentially missing out on a deal, perhaps you instead choose to invest in something a little less liquid but that might earn you a higher return.

Assume either way that you can cover all your basic living expenses and that you have the necessary reserves saved up to cover the unexpected things life throws at you.

Cash is Trash vs Cash is King - What say you??

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