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Cash is Not King for Millennials

Last updated by on January 16, 2016

I’ve been reading a lot about millennial trends lately, and… the kids are not all right.

One of the more disturbing pieces shared the results from a recent survey of millennials on where they believe their long-term savings should be:

“About 39% of Millennials picked cash as the preferred way to invest the money that they don’t need for at least 10 years – the biggest percentage of any age group. Another 24% chose real estate, while 13% picked the stock market.”

Compare these results to the total population,

“Across all age groups, 25% said they prefer cash investments, 23% chose real estate and 19% said they would put their money in the stock market.” 

and you’ll see that those who stand to benefit the most (millennials) from long-term compounding investment returns, are the most risk averse to capturing them. Millennials fear investing. A lingering after-effect of the 2008 market crash, perhaps?

cash is not kingSadly, its not just talk – 52% of millennial savings are in cash.

Not good, folks.

I’ve talked about why you need to start investing previously. In short, if you don’t, inflation is going to eat away at your savings until you are left with only a fraction of the buying power you started with. And with pensions dying/dead and Social Security not being the guarantee it once was, we’re going to have to heavily lean on investment returns to fund our long-term financial goals and retirements.

Cash, or cash equivalents like savings deposits, certificates of deposit (CD’s), and money market accounts (MMA’s) haven’t always been a bad investment. There have been times in recent decades where you could get a 5%+ interest rate from one of these investments, with no risk. But with current bank interest rates at well under 1%, we are far away from a return to those times. And less than a 1% return just doesn’t cut it.

But… don’t just take it form me. What does one of the greatest investors of all time, Warren Buffett, think about cash as an investment vehicle?

“The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.”

In his most recent shareholder letter, he provided some sound investment advice for beginning investors,

“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s. (VFINX)…Accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs.

Investing can be as simple as that.

While short-term investing in the stock market might seem risky (and even result in losses), the key is to stick with it and keep contributing for the decades ahead. The alternative is getting your hard earned savings eaten away by inflation – and that’s no way to live like royalty.

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • dave says:

    Could it be that the 52% in cash is earmarked for short term goals like house down payment… Since this generation is younger. The 52% cash savings should be specifically for a 10 year investment if you want it to be relevant to the opening statements.

    • G.E. Miller says:

      It’s possible. I think the first quote is more telling.

    • Danny says:

      Dave, I agree with your point. As a 20something, my largest account is in savings (nearly 50%). although this money will be used for paying cash for graduate school**. While I try to invest as much as I can, most of my savings are being earmarked for short term but large purchases to keep things stable in my life. I would prefer to invest more in index funds and other securities but most of my savings must be used for non-investment things.

      **Grad school is an investment but not a purely financial one.

  • I think some people are scared to invest. I know my husband is, so I invest for us.

  • Grant says:

    I keep a lot of cash on hand (a lot being relative), but my strategy is to build up cash reserves to take advantage of opportunities. For example, if I had had more capital in 2008, I would have had the ability to purchase both stocks and real estate at deeply depressed prices. I’m stockpiling cash and losing to inflation so that I am able to respond to opportunities when they present themselves.

    • Matt says:

      That’s a fascinating strategy, Grant.

      I’ve recently been splitting 100% of my monthly savings 80/20 between mortgage pay-down and a Vanguard total stock market fund, respectively. I’m actually looking forward to a market crash, so I can shift my savings allocation in favor of Vanguard, though I worry that when the time comes, I won’t have the savings on-hand to invest as heavily in Vanguard, thus taking full advantage of a market crash.

      Still, I’m not quite comfortable keeping cash around for that unknown opportunity. I’ll sleep more soundly at night knowing nearly all my savings is working for me one way or another. Before I hopped on the Early Retirement bandwagon (last year), I used to love seeing my savings account balance go up. Now, I keep it at the bare minimum by forecasting expenses diligently and following Mr. Money Mustache’s advice on flex cash.

      Either way, I hope your strategy pays off (literally!).

      • Mike says:

        With the dollar losing value, you’d probably be better served by investing vs mortgage paydown. Inflation benefits debtors, which is why the US Govt likes inflation 😛
        G.E. have you done a topic on investing vs mortgage paydown?

        • Matt says:

          Thanks for the tip, Mike. I would love to read a comprehensive article on Mortgage Paydown vs. Investments. My reason for pushing mortgage paydowns now is that (at my current 80/20 allocation), we’ll be mortgage-free in less than 3 years, boosting our savings rate from 50% to 75% and cutting our expenses accordingly. That freedom from debt will make me more comfortable choosing a more appealing job in a different part of the country. My goal is financial independence ASAP and investing is a huge part of that, but I want to make the years leading up to F.I. as enjoyable and stress-free as possible, too. Hope that makes sense, but let me know if I’m missing something. I’m open to any suggestions.

          • Tom says:


            I read this article a while back and found it pretty compelling. It does a great job summarizing the invest vs pay off mortgage early decision. I also like that while he crunches the numbers and gets to the cold hard truth, he also digs into the “human” element.



          • Mike says:

            Great article Tom!
            And in the interest of un-hijacking this column, I only keep enough cash around to pay the bills and fund my fun. I prefer to keep some precious metals and dividend paying stocks for my unanticipated cash needs.

    • G.E. Miller says:

      I think it’s good to have some cash on hand to be opportunistic. But most of it? That sounds like market timing. When does your crystal ball tell you to get back in? And do you trust your crystal ball?

      • Peter says:

        Agreed. Traditional finance (which they teach in school) will tell you that over the long term, there’s not such thing as market timing. While buying and selling at peaks and valleys will give you the best return theoretically, on average you will not be able to time this any better than flipping a coin. It is far better statistically to invest money incrementally over a long period than saving large chunks to invest when you think that the timing is good.

        I can go into the math if you’d like, let me know.

        Source: Finance classes at Michigan State University

  • Alyssa says:

    What do you recommend for an emergency fund? Surely you shouldn’t have that invested in the market?

  • Daniel says:


    How do you feel about telling people to invest in an Index Fund when the market is at an all-time high? This is a questions I struggled with when I started working last year (November), and wasn’t sure to buy into index funds or not. Since then, the market has gone up and I lost potential earnings; however, I believe the market will eventually “correct” itself–making me hesitant to put money in an index fund. What are your thoughts?

  • Retired by40 says:

    Yeah, more and more credit cards are becoming advantageous. I think if you can’t use them responsibly, then absolutely use cash, but if you can control you spending even remotely, you had better be using credit cards! Plus, who doesn’t want to go on virtually free vacations???

  • Gene says:

    If you are investing regularly you will be putting money in the market at the highs and the lows. The biggest determinant of returns is regular investing. Even though the market is at a high right now you are far better off to put money in now than try to time the market. Although the pundits say the market will go down they don’t know when it will happen. In the bull market just before 2008 the pundits were predicting a fall 2-3 years before it actually happened

    VFINX is a great option but for some people 2K start up is a little high. Another option is VOO which is an exchange traded fund. It can be bought and sold just like a stock but fees are higher than what you would get with VFINX.

    I’ve been investing in DRPs which are a nice way to invest if you don’t have a large hunk of cash. Downsides are its a pain to handle from a tax perspective and its a little high risk b/c you are only investing in a few stocks (vs 500 for VFINX). I like JNJ for this. Long track record dividend paying, etc.

    Just some thoughts!

  • Warren says:

    It is possible that the meaning of keeping a large percentage of cash is quite different than what you think. As people are paid less, keeping the same or even lower dollar amount in cash becomes a larger percentage of the non-spent income.

    As an example, someone making $40 an hour who annually has $30K left over might have $5K in cash and $25K invested. On the other hand, someone making $10 an hour might have only $3K left over, all of which is cash.

  • Old School says:

    I tend to want to keep the typical 3-6 months in cash as an emergency fund.

    Otherwise I completely agree with what G.E. has to say. Nothing risked nothing gained, and there isn’t even a ton of risk involved with investing if done well.

    I hope that Mgeneration does not follow the same mistakes that led us to the 2008 crash. Maybe that is why they chose to save their money rather than invest. They may be just extremely cautious and wary of the market.

    Yet another reason why I push for financial classes to be taught in high school.


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