🌼“Cash Is Trash” By Robert Kiyosaki vs. “Cash is not Trash” by Warren Buffett, Who is Right?

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🌼“Cash Is Trash” By Robert Kiyosaki vs. “Cash is not Trash” by Warren Buffett, Who is Right?

Analyzing the two ideas from the biggest financial gurus of all time.

“Cash is trash” — Robert Kiyosaki

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“Cash is not trash” — Warren Buffet

Since the creation of his first book, Robert Kiyosaki has had a very clear position regarding money: having it liquid is a waste of it. He even tweeted about it recently while giving an opinion about the Gold crash and his position about investments:

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Robert Kiyosaki tweet about gold and cash — Screenshot by the author

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However, a few weeks ago, Warren Buffett participated in the Berkshire Hathaway annual meeting, where he discussed the Federal Reserve balance sheet and inflation. In the interview, he said an unpopular opinion in the world of personal finance and millionaire habits: “Cash is not trash.”

Read also: 7 quiet signs of a successful future

Both men are self-made millionaires, Robert Kiyosaki with a net worth of $100 Million, and Warren Buffett with a net worth of $112 billion. However, both have different opinions about cash.

Who is right and what advice should you follow?

Analyzing the reasons behind each statement.

The author of “Rich Dad Poor Dad” says that trash is cash because investments like Bitcoin, gold, and silver are not directly controlled by the US financial system as the dollar does. And it preaches how decentralized markets came to fix the world.

Also, he always talks about how inflation impacts savings. Which we know is a fact. According to the Bureau of Labor Statistics, the inflation rate from January 2022 to January 2023 was 6.4%.

Over time, inflation can reduce the value of our savings, and printing more money, thanks to government decisions, can cause more inflationary pressure.

As an investor, it makes sense that you understand that the more money you keep in different investments, the less impactful inflation will be for you. In addition, keeping your assets in products other than liquid cash helps government decisions not affect your wealth.

Warren Buffett, on the other hand, says that cash is not trash because it is what will help you grow in recessions and emergencies. He also states that many financial mistakes are buying every time instead of waiting for the perfect moment to make a good decision with all your money.

His idea that money is not trash comes from the fact that having a good amount of money saved in liquid can help you get an excellent unique business opportunity that the DCA could not provide you.

For example, the bear market of 1973 allowed Buffett to purchase a stake in the Washington Post company, which increased more than 100 times the purchase price. If he had used his money each month to buy different stocks in DCA instead of a single winning buy, he might not has his current wealth.

So, which one is better?

As I always say in my money and financial post, it all depends on your goals and vision about money. However, I strongly think that cash is not trash because it could help you be part of many opportunities and peace.

Companies like Google, Apple, and Microsoft hold a big portion of their portfolio in cash for several reasons (strategic investments, research and development, financial flexibility, and mergers and acquisitions).

But the principal reason is financial security.

In a Harvard article about “Why Are Companies Sitting on So Much Cash?”, the author explained that having cash is the best way of having security:

Obviously, cash provides excellent insurance in times of escalating uncertainty. It insulates firms from risk in the financial markets, ensuring the ability to fund critical projects and compete strategically in their product market. But are firms holding so much cash just out of an abundance of caution? Since managing liquidity is one of the CFO’s most important tasks, particularly in the face of a potential economic downturn, understanding what motivates peer firms’ cash levels can help executives make more informed decisions for their own firm.

Liquid cash helps you be prepared. It is the best insurance for everything that could happen to you: from losing your job, having a big pandemic, or a disease, to business and investment opportunities. And it’s the way you could raise again after a recession.

People who do not have liquid cash depend on a market situation to carry out all their plans. People with money can make these plans when they want and consider the perfect moment.

Cash it’s also important to fight recessions. Since 1785, the United States has had 48 recessions, which could mean that we had a recession every five years.

Having liquid money for those moments means you can exponentially grow your wealth, but believing that all your money should go to your investments every month makes you lose those opportunities.

So you will earn 5%-12% annually because all your money always goes to your investment, but you will lose 20–80% earning opportunities for the same reason.

Having liquid money for those moments means you can exponentially grow your wealth, but believing that all your money should go to your investments every month makes you lose those opportunities.

So you will earn 5%-12% annually because all your money always goes to your investment, but you will lose 20–80% earning opportunities for the same reason.

Read also: 7 beliefs you need to throw away to have a better life

Final thoughts

Personally, I have brought my investments to a stable point where I don’t have to take all my savings there, just a portion of it, and I have realized that having cash is also an important part of my portfolio.

It helps me to have security, peace of mind, and capital for possible opportunities.

I love the money my investments are giving me, but I also love the peace my liquid cash provides me.

I like Robert Kiyosaki’s point of view that investments help grow your assets and insure them from recession and government decisions, but I’m more inclined to Warren Buffett’s thinking that it’s important to also have cash on hand in case of emergencies.

If you are starting to create your wealth and do not have any investments yet, the proper thing to do is to create an emergency fund of three months’ salary and then maximize your investments in any market you choose.

But when you’re at the point of having enough money in your investments, it’s important to maximize liquid money as well.

Contributed by Desiree Peralta

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