August 2008 – Volume 1 Issue 5

The undisputed King is not Elvis Presley but Cash. But in this month's saga, sometimes the King is not always right.

Best regards,

Brian Greenberg, CPA, CCPS
President
Brian Greenberg & Assocs

One of my favorite clients is a self-made man who came up from nothing and built up a sizable fortune in his business. But one of his quirks was he liked to hold onto cash, Armageddon-type cash. You know the kind when the banking system collapses and Mad Max is roaming the highways chasing after bandits who steal gasoline. Can you imagine such a fantasy?

What struck me was the amount of cash he kept in his safe — over a $100,000. Now I know he grew up in hard times, and there was a Great Depression in our country, but this investment choice just did not strike me as conservative. Now my client is an older fellow (I hope he doesn't take offense with this discussion, I think I'm safe he really doesn't use the internet and shouldn't read this newsletter. Then again someone might tell him about this piece. On second thought, I better change the facts. This is a story about a young gentleman who inherits a large sum and puts it into cash.)

Anyway, the prevailing thought is the safest place to put your cash is "in the mattress". The thinking is I can't lose anything, I may not earn either but at least I'm protected. Unfortunately there are always risks in any investment decision one does, even when one does "nothing". Most people recognize the loss of earned income by not having the money sit in a bank. If the choice is the stock market, well today the popular sentiment is that it is very risky and fraught with volatility.

The most significant risk to keeping your money in a mattress is loss of purchasing power. Every year stuff goes up, goods and services cost more and more. We live in an economy that has inflation. Each year prices go up anywhere from 3 to 5 percent or much higher like gas of food. By leaving your money safe at home, it's like taking a match to your money. If he were to hold that cash for ten years, this would result in burning half of that stash of cash.

Right now, officially the stock market is in a "bear market". Clearly, it is not an alluring place to put new money. So, is it then better to wait out the market declines until things get better? Historically, that concept has not been a successful strategy. At the same token are your investments slanted towards the riskier part of the market and down further than the averages? Vigilantly reviewing your holdings to insure you are diversified and seeking out conservative investments will help minimize the grief and help your money grow.

All investment decisions are active. There is no such thing as staying put as doing nothing is choosing not to be proactive in your investment choices. And as was shown in the above example, the nice young man who inherited money would ultimately wind up losing his money if he chose to be conservative and keep it in the vault.

As for how much cash to have on hand, in a bank (FDIC)? One should keep enough money to cover at least six months of monthly bills.

So what is the lesson to apply here? Too often a decision is avoided under the thought that change is risky. One feels better at status quo because they are comfortable or less uneasy about change. However, not making a change can have severe consequences as well.

Last month, Brian appeared on Comcast TV's "It's Your Call" with Lynn Doyle.

Brian Greenberg and Associates is a Marlton, NJ CPA firm providing tax and financial planning services. We specialize in helping small business owners retire on their own terms. Follow this link for more on how we can help you.

Brian C. Greenberg & Assocs
1 Eves Drive, Suite 111
Marlton, NJ 08053
856-596-7800

website: www.greenbergcpa.com
email: brian@greenbergcpa.com

Brian Greenberg is Registered Representative of and Securities and Investment Advisory Services Offered Through Hornor, Townsend & Kent, Inc. (HTK), Registered Investment Advisor, Member NASD/SIPC.