Monday, June 1, 2015

Money Grows In The Refrigerator, Not Under The Mattress

Grandpa used to hide stacks of cash under his drawer, in secret compartments and under the mattress. 

While that may not be one of the best investment strategies we know of, it's still a better strategy than living life on a credit card. 

But, you see, Grandpa died with nothing much left to his name. He was extremely meticulous in tracking his dollars - drawing columns on his thick legal pad to record insignificant purchases. One column would hold the dates, another would contain the descriptions of the items/purchases and the last column would be given the responsibility of noting down the amounts.

He excelled in the cornerstone of personal finance - tracking his dollars.

However, he failed miserably at growing his stash. The worst part of it all was the liquidity of his cash - which brings me to the main point of this post.

His dollars were never sent to work - like soldiers who trained for years on end but were never sent into the battlefield. Instead, they sat idle; right there under the mattress till their time was up.

Due to the fact that Grandpa's dollars were never tied to a contract/obligation, they flowed easily from his hands into the hands of lottery vendors, booze sellers and fortune tellers. His cash was like liquid, waiting to spill itself onto the ground. 

You see, Grandpa never had a chance to stumble upon Mr. Money Moustache, Rockstar Finance or even White Collar Freedom. else would you expect him to know that he's been keeping his money in the wrong place, for over 70 years?!

If he'd kept his money in the refrigerator instead, he'd be a millionaire, many times over. I'd be a smug heir driving an Aventador and I'd be too busy entertaining the Kardashians than to write a blog post for White Collar Freedom.

Okay, I meant that all figuratively.

By refrigerator, I was referring to asset classes - real estate, stocks and other investments. Asset classes freeze your liquid cash. While cash is easily traded, real estate, stocks and commodities like gold/silver have a 'thawing' period.

It takes time to liquidate these assets. The best part about 'freezing' liquid cash is:

1) Rewarded with Interest/Returns

Needless to say, when we invest, we expect returns in the form of interest + the appreciation in price of the physical/non-physical asset. For example, if you were to buy a property, you'd collect rental income every month while welcoming the chance of an appreciation in the price of that property.

Grandpa lived through both world wars. If he had invested $1,000 in the stock market in 1932, he would have amassed (warning, financial cliche ahead...) $4,609,000 in 2012.

That's what the 'refrigerator' does.

Of course, there are always risks involved. But if you're not willing to take those risks, then you can do what Grandpa did - keep your cash under the mattress.

But we all know how that ended.

2) Non-liquidity Curbs Outflow

I make it a point to immediately 'freeze' any extra liquid cash that I have by quickly adding to my dividend-growth portfolio.

The reason is simple - any liquid cash lying around (or in a bank account) runs the risk of being spilled on the ground.

Have you ever noticed that when you have a stack of cash in your wallet, you tend to feel an itch to spend it? Suddenly you're in the mood to 'get something nice' for yourself.

Well, good for you if you've never felt that way. But statistics would show you that a tonne of people live on credit cards.

When you have most of your cash in stocks, real estate and other investments, it would require a more active effort for you to liquidate them to fund a purchase.


This may be an oversimplified take on the benefits of non-liquid assets but that's really it.

You decide.

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  1. The amount of information is definitely helping us. I don't think anyone would answer a cold call and actually invest the money. It is just ridiculous to me. I stick with Vanguard right now but am more focused on the mortgage (especially since the stock market has been really steady for a while). If there's a correction, then we'll switch modes, but we're also still in the PMI range right now so that changes things too.

    We haven't looked at dividend investing other than taking the dividends we get from VTSAX.

    1. Firstly, I think the idea of 'early retirement' was almost non-existent during the industrial era. I wouldn't think Grandpa would have stumbled upon early retirement books...but if only he had a knack for reading, he may have stumbled upon Ben Graham's books.

      Too bad that did not happen.

      We are indeed blessed to have a plethora of modern/applicable personal finance information. Now, we'll just hope more people actually use this information and act on it.

      VTSAX has been on a really steady increase thus far. Don't think u can go wrong with that.


  2. I know what you mean. It always bums me out when I picture what modern personal finance (slow consistent stock purchases) would have managed to do for my family (and most people I know) by now. Stacks on stacks.

    1. Man...tell me about it. But here's the best part, we have a lifetime ahead of us to do what our parents/grandparents did not.

      And I'm confident that a smart guy like yourself will have those 'stacks on stacks' in no time