It\’s Personal Finance 101: Keeping cash in your mattress is fairly bad money-management. And yet a lot of folks do it. According to a current survey by American Express, about one out of three Americans hold a minimum of some savings in good old greenbacks, and the number keeps growing. About half keep it in a secret place – the freezer to be the most popular home vault – and millennials are particularly secretive about their stashes, with two in three keeping dollars inside a hidey-hole (probably so Mom won\’t find out their live-at-home 25-year-old has more money than she thought).
There are lots of reasons why this is a bad idea. Secret or no, you take a higher risk of losing your cash than should you put it in an insured bank account. Your house might burn down, or you might get burgled. And funds is dead money: in normal times, you\’d expect inflation to eat away the purchasing power your dollars with time. Far better to place it to work in other investments.
These arguments ignore human nature, of course: The most typical reason people hole up funds are for fear of a financial emergency. But there can be a more opportunistic rationale for stuffing cash. For instance, if you were expecting deflation instead of inflation, then you\’d also expect the purchasing power of your dollars to increase over time. You could sit on your shekels and emerge richer a few months later, and it would be as easy as taking a nap. As long as you\’re right about this deflation bit.
However questionable it is with cash, you can see it at work, in a way, in the current oil markets. With the rout on oil prices over the past few months, the industry is effectively stuffing crude inside a hidey-hole. Canadian energy investors would do well to consider what this might mean to oil prices.