You, like many Americans, may have a sizeable pot of cash just sitting in a bank account earning next to nothing.
The goal in keeping cash in a bank account is safety.
But what if I were to tell you that you that there was a hole in your pot and you are losing 2-3% each year and not even realizing it? You might think twice about keeping high levels of cash in the account.
In a sense, that’s what is happening. Every year, the cost of goods and services increases by 2-3% but the cash stays the same. This cash in your pot has ability to buy a little bit less than it did the year before and the year before that. This is the conception of inflation.
$50,000 today will buy more than $50,000 5-10 years from now.
One option to get around this harsh reality is to invest excess cash in a balanced diversified portfolio.