When Cash Isn’t King, Or Queen

Cash reigns, doesn’t it? Safe as houses? Actually, we couldn’t disagree more. Cash has its uses, but it’s not a long-term savings or investment tool. In fact, there are few assets more likely to poison your wealth. Don’t just take my word for it though, have a look at the evidence and see what you think.

Riskiest Investments Of All

Crypto absolutely. Spread betting for sure. Currency trading (unless you’re a hardened professional). Oh, and cash.

We were making a list of the riskiest investments.

But cash, you ask? Surely that’s the safest bet of all? Wads of notes under the mattress and so on?

We admit, cash can retain its value in even adverse conditions. Instances when it hasn’t are so rare they’ve gone down in history. Take 1946 Hungary. With inflation at 13.6 quadrillion percent, your money would halve in value every 15.6 hours!

But this is a rare exception. Cash can be a nicely stable asset.

And that’s where the problems start. It might rarely drop in value; it doesn’t go up either.

From Riches to Rags

The issues start with rising prices. They go up, while cash stands still.

The Bank of England has a useful inflation calculator. You can use it to show the value of money more than halving since 1995[1]. In other words, if you bought £10 worth of goods then, you’d have to spend £20.74 on the same items today.

Expressed another way, that’s a cumulative rate of inflation of 107.4% – as you can see from the chart below – or 2.41% a year.

That 30-year period also equates quite nicely to someone’s investing journey: starting in their late 20s and finishing late 50s.

If that journey was based on cash, you’d end up with half the money you started with.

[1] Calculations assume starting in £10 in 1995 and identifying the latest value, which is from August 2025

The Biggest Loser?

This evidence doesn’t stop people piling into cash.

One good barometer is the types of ISAs people buy each year. You can use an ISA for all sorts of assets and, in the last year, people chose cash: £103 bn worth of it… a new record.

I don’t know what lies ahead but, if future inflation compares with the last 30 years, that money will halve. Should inflation go up to, say, 7% that money will halve in just a decade.

By contrast, the evidence says there’s an asset which may be better suited to build wealth.

Let’s look at another graph, from a really good investment firm called Dimensional. It’s of the American stock market, which has the longest data.

Had you invested $1 back in 1926, when these records began, you’d have around $849 today. And that’s after we’ve accounted for the impact of inflation.

One interesting thing about this graph is its smoothness. Covid, the financial crisis and the dotcom boom and bust all caused so much fear anguish at the time. But it’s hard to identify which ripple is which here. Go back further and you have oil crises, wars, depressions and so on. All just wrinkles on the broad canvas of history.

Another is the way it remorselessly, relentlessly grind up. This machine might stutter but it only knows one direction: it starts bottom left and ends top right. Oh, and look at the left-hand scale; we had to adjust it to go up in multiples not equal amounts… otherwise we’d have run out of space.

Now, you’ve probably noticed we’re making the case against cash with 30 years of data and for equities with a century of it.

So, let’s go back to that Bank of England inflation calculator. We asked it what we’d need to spend today, to buy £10 worth of goods from 1926. The answer is £533.10… that’s an inflation rate of 5,231%.

By all means use cash to cover unexpected, short-term costs. Anything longer and you get a whole load of risk.

Want to chat about risk? We can talk to you about your goals and aim to help you reach them. Email us at hello@firstwealth.co.uk or call an expert on 020 7467 2700.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.