It’s easy to think of the cash option in your 401(k) as the safest place for your money – after all, it’s not going to lose value. But putting your money in cash can be incredibly risky.
When we think about risk, we’re not just thinking about how much money you can lose. We’re thinking about the impact this will have on your ability to reach your financial objectives.
Cash doesn’t do much to help you reach your financial goals. Inflation is constantly eating away at the purchasing power of your cash. In effect, you are constantly losing spending power when you invest in cash.
In a recent study, BlackRock found that Americans hold about 65% of their net worth in cash. Some of this is likely because cash is the default investment option in many retirement plans (another issue in and of itself), but a lot of it is because people don’t feel comfortable investing.
It’s important to consider your entire financial picture and how it relates to your financial objectives. While the “safety” of cash may feel good in the short term, it’s not very safe in the long term.
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