Cash Risk
Cash deposits appear to be safe assets.
It is true that the price does not drop every day like stocks.
However, as prices rise, the number of goods and services that can be purchased with the same 1 million yen decreases.
The safety of face value and the safety of purchasing power are two different things.
For example, if prices rise by 2% a year and deposit interest rates remain at around 0.2% a year, your purchasing power will decline. This is not a loss that can be seen every day like in stock prices, but it has a gradual effect on household finances.
Life defense funds are necessary
It is risky to allocate all your cash to investments as a measure against inflation.
You need cash for sudden expenses such as illness, unemployment, moving, broken home appliances, nursing care, etc.
| Purpose | Location |
|---|---|
| 3-12 months worth of living expenses | Ordinary savings account, etc. |
| Money to be used within 1 to 3 years | Time deposits, government bonds for individuals, etc. |
| Money that will not be used for 10 years or more | Consider investment trusts, stocks, NISA, etc. |
Investing is basically done with money that you have no plans to spend in the short term.
Mutual funds and stocks are candidates for inflation protection, but they do not guarantee principal. If you invest money that you plan to use in the short term, you may be forced to sell when the market goes down.
How to divide assets
If you want to prepare for inflation, it's important not to look at cash, investments, insurance, mortgages, and pensions separately.
| Assets | Role |
|---|---|
| Cash | Emergency safety valve |
| Deposits | Money to be used in the near future |
| Investment trusts | Long-term measures against price increases |
| Gold | Diversification during currency instability and inflation |
| Real estate | Fluctuations in housing costs and asset values |
Focusing too much on one thing increases the risk of another.
summary
Inflation can reduce the real purchasing power of cash deposits, even if the face value does not.
However, cash is required as a life defense fund.
Separate your living expenses, money you will use in the near future, and money you want to increase over the long term, and use cash and investments differently depending on your role.
The amount of cash you need will vary depending on prices, interest rates, family structure, and income stability. When starting to invest, check the risks, fees, taxation, and price movements of each product before making a decision.