Dear Aunt Sue
A colleague says he invests in ‘cash’ because of the market at the moment. I feel like a real lame brain because I thought cash was what I put in my purse! Can you explain what it means?
Mystified, Queanbeyan
Dear Mystified
It is a bit confusing isn’t it?
To put it simply “Cash” in your pocket is not an investment as it does not have the potential to earn you any interest whereas a “Cash Investment” has the potential to earn you interest. As an example if you put $100 under your mattress and go back in 10 years you will still have $100. But if you put $100 in a bank account that pays you interest (notwithstanding these are few and far between at the moment!!) when you go back in 10 years’ time you will have more than the original $100 as it has earned interest.
So when your colleague says he has invested in “Cash” he will be invested in one of these types of accounts; everyday bank account, high interest savings account or a term deposit.
There also is the effect of erosion of the value of the $100 due to inflation over time but that is a story for another day.
I hope that has helped you Mystified – now, if your colleague talks about his investments in Cash again and you have some money in the bank you will be able to say “Oh, I am investing in Cash too”.
So until next time girls and boys, as always keep those questions coming in by visiting our website https://www.moneynatters.com.au and using the “contact us” tab.
And finally “A balanced budget is when the money and the month run out together”. How very true!
Have fun and keep smiling – Aunt Sue
