National Edition

Investing in cash a 'big mistake' for the long-term

Published: Wednesday, July 31 2013 11:20 p.m. MDT

Americans are preferring to save in cash versus stocks, but won't see much return for their efforts, a study by Bankrate.com says.

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Many Americans are making a "big mistake" in their investments, according to a CNN/Money article by Hibah Yousuf.

"Twenty-six percent of Americans prefer cash for their long-term investments, edging out stocks, bonds, gold and real estate, according to a new Bankrate survey of more than 1,000 U.S. adults," Yousuf writes. "A $10,000 investment in a money-market fund today would just gain $110 over a decade, according to Bankrate. … While holding cash eliminates the risk of losing that money, it also means that after a long period of time, you get less bang for your buck, as inflation makes those dollars worth less."

That return, Bankrate reports, "yields just 0.11 percent … and the average five-year CD currently yields just 0.78 percent."

"The fact that people don't save enough is well-documented, but people hunkering down with cash with such little savings at low interest rates has the potential of leaving millions of Americans well short of where they need to be for long-range goals like retirement," Greg McBride, Bankrate.com's senior financial analyst, told ABC News.

An article by Esther Shaw in the Express shows similar problems in the U.K. "The latest inflation figures showed the (U.K.) consumer price index (CPI) had risen from 2.7 per cent to 2.9 per cent during June, meaning a basic-rate taxpayer now needs to find a savings account paying 3.63 per cent interest to beat inflation, while a higher-rate taxpayer needs to get 4.83 per cent," she wrote.

Yet, in the U.K., "nearly two-thirds of savers are not putting their money in anything but cash and are staying away from investing on the stock markets."

Back in the U.S., McBride told CNN/Money that the financial crisis and dotcom bubble bursting gave a lot of Americans pause.

"The ride down wasn't fun for anyone, but those who hung in there and had fortitude to buy more stocks along the way are in a much better financial position today," McBride told CNN/Money. "But those who have been hunkered down in cash are no better off."

EMAIL: mdegroote@deseretnews.com

Twitter: @degroote

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