Introduction
Holding cash refers to keeping money in the form of cash or keeping in saving or fixed accounts in the bank. On the other hand, stock investment means buying shares of publicly listed companies with the aim of generating regular dividend income or to build wealth. In this post we are going to explain advantages and disadvantages of holding cash and investing in stocks that may help you to make wise decision.
Pros Of Holding Cash
The main advantages or benefits of holding cash can be pointed out as follows:
1. Stability And Safety
Holding cash is safe from market volatility. Cash does not fluctuate like stocks. Therefore, it is more safe and stable than stocks.
2. Liquidity
Another benefit of holding cash that it can be accessed immediately for emergencies. It also helps to grab business opportunities.
3. Reduced Stress
Holding cash is not riskier like investing in stocks. So it reduces stress especially during economic uncertainty. So, it is suitable for people who avoid risk.
4. Capital Preservation
Because of no volatility cash does not lose its nominal value.
Cons Of Holding Cash
The main drawbacks or disadvantages of holding cash are as follows:
1. Risk Of Inflation
One of the major disadvantages of holding cash is inflation reduces the purchasing power of your money. There is a risk of losing money if cash cannot earn at the rate of inflation.
2, No Wealth Growth
By holding cash you miss out long-term growth opportunity because cash does not compound significantly like stock investments.
3. Low Returns
Interest rates on saving accounts are generally very low. So, holding cash is less profitable than stock investment
Pros Of Investing In Stocks
The main advantages or benefits of stock investment can be highlighted as follows:
1. Long-Term Growth Potential
Stock investment offers higher long-term returns than holding cash. Stock market outperforms cash over long run.
2. Inflation Hedge
Another benefit of investing in stocks is that it beats inflation than holding cash. So, it is better to make stock investment than holding cash.
3. Regular Dividend
Most stocks pay dividend on regular basis it helps the investors to generate steady income.
4. Accessibility
Because of low barrier to entry anyone can start stock investment with small amount of capital.
Cons Of Stock Investment
The major drawbacks or disadvantages of investing in stocks can be pointed out as follows:
1. Market Volatility
One of the main disadvantages of investing in stocks is volatility. Stock prices can be fluctuated in the short-term due to negative events and crises. So, it is more riskier than holding cash.
2. Complexity
It requires deep research, market analysis and constant monitoring for stock investment. So, it is complex and time taking process.
3. Emotional Stress
Market swings and portfolio fluctuation may create emotion stress to the stock holders.
4. Lower Liquidity
Holding stock is less liquid than holding cash.
Holding Cash Vs Stocks (Comparison Table)
|
Basis |
Holding Cash |
Stocks |
|
Liquidity |
High |
Less |
|
Safety |
High |
Moderate |
|
Growth Potential |
Less |
High |
|
Inflation Hedge |
No |
Yes |
|
Volatility |
No |
High |
