The conventional wisdom of finance indicates that the ideal amount of cash (i.e., checking/savings balances and other very safe, low-return investments) to keep on hand is the minimum amount that is necessary to avoid exposing yourself to undue risk. Anything above that amount should be invested in order to earn a higher return.
This week, however, Michael Kitces draws our attention to a study (pdf here) showing that cash on hand (in the form of checking/savings account balances) has a much stronger correlation to both sense of financial well-being and overall life satisfaction than many other financial measures, including total investments, monthly income, or indebtedness.
In short, holding cash tends to make people happy, even when they have significant other assets and don’t really have a true financial need for a large cash balance.
- Buying Life Satisfaction with Greater Cash-On-Hand Reserves from Michael Kitces
- Advisors Are Subject to Behavioral Finance Mistakes Too from Allan Roth
- Which Makes More Sense for Retirees: A Total-Return or Income Portfolio? from Wade Pfau
Other Money-Related Articles
- Who is Buying Long-Term Care Insurance? from Kim Blanton
- H&R Block and Intuit Still Lobbying Against Free and Simple Tax Filing from Jessica Huseman
- If IRS Offers Free Direct Filing How Many People Will Use It? from Harry Sit
Thanks for reading!