USCurrency_Federal_Reserve Having a cash savings account / emergency fund is sound financial advice.  Anyone who knows anything about money will tell you so – and I won’t disagree.  You absolutely must have cash on hand for emergencies – once any high-interest credit card debt is paid off, of course.  What I do want to talk about is the importance of diversifying your stash of cash.

What is this guy talking about?

Sure, you’re thinking it.  And the picture to your left doesn’t help at all.  The picture is actually an example of what I don’t mean.  Diversifying your cash doesn’t mean having $1′s, $5′s, $10′s, and $20′s sitting around.  Though the face value is different, each of those bills are really the same thing – US Federal Reserve Notes.  Same goes for the numbers in your bank account.  Just like the bills, your savings is subject to inflation, or the shrinking in value of the US Dollar.  The more time that passes, the less your cash is worth.  That, my friends, is why you need to diversify.

Gold and Silver can help

I know I’m on a precious metals kick lately.  But the fact is, they are a great way to diversify your cash.  Both gold and silver are legal tender currency ( in the form of American Eagle coins ) in the United States.  Granted, you shouldn’t spend them at face value, but the fact is that they can be used.  In other words, they are money, as real as the greenbacks in your wallet.  Really they’re a combination of money and an investment.  Following my investment rules – if you “buy them right”, you will do just fine.  Don’t overpay for gold and silver because they are shiny.  Pay a reasonable price for them, and they are a great diversification.

Precious Metals are Liquid

If you need greenbacks in a hurry, both gold and silver are very liquid.  A quick trip to your local coin dealer will turn your metals into cash in no time.  If you prefer, you can list your coins on Craigslist or Ebay as well.  Either way, it won’t take more than a few days at most to get some good old-fashioned money in your hands.

Hedge yourself against inflation

Don’t go out and empty your savings account to buy gold and silver.  At the same time, it’s smart to have a position of one or both.  As a general rule, as the US dollar decreases in value, gold and silver increase.  By the same token, when the dollar increases in value, gold and silver decrease.  By owing both, you create a balanced system of hedges.  You won’t get rich this way, but you won’t see your savings destroyed by inflation either.

Take a percentage of your savings account and invest in metals.  The percentage you choose is up to you.  More metals = more risk, but a stronger hedge against inflation / a weak dollar.  A lower percentage means lower risk, but also lower inflation protection.  Only you can decide how much risk you are comfortable with.  I have been slowly buying metals over the past month, and plan to continue to do so.  Inflation is here to stay for now, and I don’t see a stronger dollar in the near future.  I am preparing myself for it as best I can.  You should do the same.

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