You might be familiar with the term making money from your cash but have you ever heard about losing money to your cash? Yes, you can actually lose money to your idle cash. If you compare different investments "Idle Cash" is probably the worst thing you can do with your savings.

What is Idle Funds?

There is a huge population of people who are not familiar with the term “Idle Funds”. For people, cash means currency or any security which is equivalent to the cash. The Idle Funds basically is the money that is kept as saving and is not invested. These types of funds are not invested in any investment tracing vehicle which means they are not part of the economic markets. The Idle funds are also commonly known as “wasted” funds since they are not bringing any good.

How does it compare with other investments:

People all around the world are so used to of keeping cash that they do not understand the need of investing them. During times when the inflation rate is high, your idle funds will end up decreasing in value. In order to maintain the liquidity of the funds while earning income from the funds, one of the wisest options to go with is investing your money in the money market, be it short term or long term investment. According to a research paper that was published in the Financial Analysts Journal, Vanguard founder John Bogle mentioned that that the idle cash is one of the common reasons most of the investors are not making as much investment as they can.

To break down things for you let’s say that you have $200 in cash with you. You decide to save it by keeping it in your cupboard. In next five years, your $200 will shrink in terms of value. The buying power of the cash will be eaten up by the inflation. Things that you can buy from your $200 today will be more expensive in coming 5 years.

In simple words, unless you decide to put your money to some use in form of investment, it will end up losing its buying power.

Things to know on comparing investments:

When it comes to the long term investment portfolio, the cash needs to be minimized so that it is not devalued by the inflation.

You should know if you are holding any cash in your portfolio and what negative effects it can bring to your wealth.

In order to know how much idle cash you are holding, you need to sync all your investments.

Why cash is not good?

For the long term portfolio, holding on idle cash is not a good option as it can decrease the returns. However, despite being not so good for the long term portfolio, it still ends up being in most of them.

As per the investment Research, an average account holds almost $31,000 cash, which means that almost $200,000 is lost return for over 30 years at the growth rate of 7%.

How cash becomes part of a portfolio?

There are multiple sources through which cash becomes part of the investment portfolio. Some of them are as follow: