Why Your "Safe" Investments Might Be Your Riskiest Asset
When markets get choppy, the instinct to retreat to safety is powerful. We watch the S&P 500 fluctuate, see the headlines about "market corrections," and naturally, we want to move our hard-earned money into something that doesn’t move. We crave the stability of cash, CDs, or government bonds.
It feels responsible. It feels prudent. It feels safe.
But in the world of financial planning, "feeling" safe and "being" safe are often two very different things. While moving to cash protects you from the uncomfortable ups and downs of the stock market, it exposes you to a much more insidious threat: Purchasing Power Risk.
Here is why your "safest" assets might actually be the most dangerous holding in your portfolio.
The Two Types of Risk
To understand why cash can be risky, we have to redefine what "risk" actually means. Most investors conflate two very different concepts:
Volatility: The temporary fluctuation in the price of an investment. (The line goes up and down).
Permanent Loss of Capital: The possibility that your money will disappear or, more importantly, that it will no longer buy what you need it to buy.
When you stay in cash or low-yield bonds, you successfully eliminate Volatility. Your account balance will look steady every time you log in. However, by eliminating volatility, you almost guarantee a Permanent Loss of Purchasing Power.
The Silent Thief: Inflation
Inflation is the silent thief that steals your wealth without you ever seeing a transaction on your bank statement.
If inflation is running at 3% or 4%, and your "safe" money market fund or savings account is earning 2% after taxes, you are losing money every single day. You aren't losing the number of dollars, but you are losing the value of those dollars.
Consider this: If you keep $100,000 in a safe deposit box for 20 years, you will still have exactly $100,000 when you open it. But if inflation averages 3% over those two decades, that money will only buy about $55,000 worth of goods and services.
You didn't lose money in the market. You lost it to safety.
The "Safe" Asset Trap
Many investors pile into conservative bonds or high-yield savings accounts during high-inflation periods, thinking they are waiting out the storm.
The problem is that "safe" assets rarely keep pace with the real cost of living—especially when you factor in healthcare, education, and travel costs, which often inflate faster than the Consumer Price Index (CPI).
If your financial plan requires your portfolio to support you for 30+ years in retirement, a portfolio that barely keeps up with inflation is not a safety net; it is a slow leak.
Volatility is the "Price of Admission"
If cash guarantees a slow loss, how do we prevent it? We have to invest in assets that historically outpace inflation: equities (stocks) and real estate.
But these assets come with a cost: Volatility.
You must reframe how you view market fluctuations. A 10% or 20% drop in the market is not a "fine" for doing something wrong; it is the "fee" you pay for the admission ticket to higher returns.
Cash offers low volatility but negative real returns (after inflation).
The Market offers high volatility but positive real returns.
To maintain your standard of living for decades, you need the latter. You have to be willing to endure the temporary discomfort of volatility to avoid the permanent devastation of running out of purchasing power.
The Balanced Solution
This does not mean you should take your emergency fund and dump it into volatile tech stocks. You need short-term liquidity for spending needs over the next 12–24 months. That money belongs in cash, regardless of inflation, because its purpose is liquidity, not growth.
However, for your long-term wealth—the money intended for your retirement 10, 20, or 30 years from now—safety is a mirage.
The most dangerous thing you can do is look at a volatile market, get scared, and move to the "safety" of the sidelines. By doing so, you trade the temporary anxiety of a market drop for the permanent certainty of a shrinking lifestyle.
Next Steps
Are you holding too much cash because of market anxiety? It might be time to stress-test your portfolio against inflation, not just market crashes.
