Have you ever heard the phrase cash is trash? This phrase was made in 2021 by a gentleman named Ray Dalio, and it refers to investment strategy and not holding cash too long. To understand just how significant a phrase like this might be, we will consider the source, what their motivations might be, and an alternative takeaway to the phrase’s meaning.

Ray Dalio, according to the World Economic Forum, is the founder, builder, and co-chairman of Bridgewater Associates, a global macro investment firm which also happens to be the largest hedge fund in the world.

When considering what it is that Mr. Dalio does for a living–getting people to invest their cash into other things so that his hedge fund may eventually profit–it does not seem strange that he would disparage cash in an attempt to convince the public (potential customers) to invest their money into stocks and securities.

But it is generally understood that the USD loses its purchasing power yearly through the attachment of debt and inflation. But to take this understanding a bit further let’s consider the following example on purchasing power over time.

Let’s say that we have two people with $10,000 cash, and for simplicity’s sake we’ll call them person ‘A’ and person ‘B’. Now person ‘A’ decides to take all of the $10,000 cash and place it under a mattress for ten years. Person ‘B’ takes the $10,000 and purchases gold and place that under a mattress for the same decade. At the end of that decade, person ‘B’ would more than likely have more purchasing power than person ‘A’ once person ‘B’ converted the precious metals back into currency based on its current value.

In the above example, cash being trash as an investment appears to get truer over time. We notice the effect of the loss of purchasing power, but it requires a bit more discernment to notice the cause. Although it was mentioned earlier that it is generally understood that cash loses its purchasing power yearly through the attachment of debt and inflation, these are the result of fiscal policies.