Cash Is King

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The irony is that the well-to-do investor’s well-being would not be threatened by consumer price inflation rates two or three times the current level. Compared to most of the population, he or she spends only a modest portion of income or wealth on consumables, while expending a far greater portion on asset purchases, the prices of which have inflated dramatically in recent years. Nothing will destroy the wealth of the wealthy as fast as deflation in financial and real assets. Only cash protects against that risk. Interestingly, we rarely get the question “how do I protect my portfolio against asset price deflation.” Ironically, CPI deflation will precipitate or accompany asset price deflation. Cash, the all-purpose hedge, ends up being the perfect asset in both scenarios.