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3 Reasons Why Cash is King in Uncertain Times Like COVID-19

Ching Sue Mae

Ching Sue Mae

Last updated 08 April, 2020

The economy around the world has seen unprecedented volatility with the spread of COVID-19. As fear and uncertainty continue to bash the financial market, we look at the reasons why cash is king.

The global pandemic that is COVID-19 continues to spread across the world at an alarming pace. First picked up in China, it has now spread to countries all over the world; this has not only sent medical providers into overdrive, but also sent financial markets tumbling to new lows. 

Market uncertainty amidst a global pandemic

In the past, investment vehicles such as Exchange Traded Funds (ETFs), robo-advisors, cryptocurrency and more were unheard of. Today, you can make an investment at the click of a button. With the ease of access to these different investment vehicles, more money is going into the markets. 

Since early 2020, countries all over the world have seen their stock markets nosedive. In the U.S., stock markets were halted 3 times as a result of massive sell-offs, and the S&P 500 lost 20%. In the UK, London’s FTSE 100 dropped 25%, the largest decline since 1987. Bitcoin was not spared, falling from more than USD$10,000 in February to less than USD$5,000 in March 2020. While these market uncertainties largely stem from the onset of  COVID-19, other factors such as the US-China trade war and the oil price war have compounded the situation.

And in an instant, the conversation has shifted from cryptocurrencies, properties and hot stock picks to... hoarding cash? Yes, cash is on everyone’s lips; it remains an asset that makes up one’s portfolio, be it a portfolio created by a robo-advisor, portfolio manager or your DIY portfolio. Money Market Funds are also growing in popularity, providing investors with liquidity as these funds typically invest in short term instruments such as short-term bonds with high credit rating.

Here in Singapore, based on the Household Expenditure Survey 2017/18, our median income is $11,777 and on average, a Singaporean household spends about $4,906 each month. This leaves us with a commendable $6,871 in savings per month. However, this is an average of all Singaporean households and is unlikely to be the case for all families in Singapore. Not all of us have the financial capabilities to save more than we spend. For example, the lowest quintile by income spends $2,570, exceeding their median income of $2,235. For those that struggle to spend within their means, the COVID-19 pandemic would have only exacerbated this plight. The government has introduced various measures such as those announced in the $48 billion Resilience budget and $5.1 billion Solidarity budget to help fellow Singaporeans tide over these difficult times.

However, many Singaporeans continue to find themselves cash-strapped. If you are in need of cash, a personal loan can come in handy to help cover your financial needs and manage your unavoidable expenditures in the event your cashflow is severely impacted. A personal loan typically offers interest rates that range from 3.5% to 10.8% p.a. For example, Standard Chartered CashOne Personal Loan offers a relatively low interest rate from 3.48% p.a. (EIR: 7.99% p.a.).

This is a good time to look at the reasons why cash is king, especially in an age when contactless payment is the new norm.

How is cash king?

Indeed, there might be an opportunity cost to holding cash, especially when the money can be worked harder in investments. Here are a few reasons why people hold on to cash during uncertain times. 

1. Cash, your blanket of security  

Cash gives you security and a peace of mind. Unlike asset classes such as stocks, cryptocurrency, property, gold, and commodities, the money you see in your bank account is the money that you have. The value of your bitcoin today is not the value of your bitcoin tomorrow. This is also why, for many of us, our emergency fund is cash we keep in a savings account. It is something we can count on to tide us over rainier days.

Unlike investments that give you returns at a certain level of risk, your only risks with cash is the opportunity cost of holding it, and the erosion of this cash due to inflation. Opportunity cost, in this case, comes in the form of higher yielding investments that you could be using the money for instead. 

But during this market downtime and uncertainty with a global pandemic, said opportunity cost is almost non-existent - and so should your worries - considering you don’t have to keep tabs on market performance charts 24/7 and lose sleep over your portfolio. 

2. Cash is liquid; you can pay your bills anytime

The cash in your wallet, the cash in your bank account and the cash in the biscuit tin under your bed can all be taken out and used the moment you want to. However, your stocks, bonds, cryptocurrencies and other assets cannot be used to pay for your meals, rent or utility bills - unless you liquidate these assets, that is. 

However, when you choose to liquidate your assets is important. During a market downturn, if you find yourself in dire need of cash, cashing out your investments could turn out to be a bad idea. Your decade old investment might not give you the projected returns. If we’re talking about properties, during periods when the market outlook is bleak, there might not even be a buyer for your assets. 

When you have cash on hand for day to day expenses, you won’t have to rely on the value of your investments to pay for your bills. Now, with unemployment expected to increase, having available cash to tide you and your family through the following months is of great importance.  

3. Cash is opportunity

Some people hoard cash (over toilet paper and rice) while on the lookout for the next big opportunity. It’s probably why some people describe it as their war chest. 

And with a substantial war chest, imagine how readily you can jump in to buy into undervalued stocks, accumulating more units that you believe will provide you with investment returns in the years to come. For example, the Straits Times Index (STI), an index that tracks the performance of the top 30 companies listed on the SGX, has fallen more than 20%, from $3200 at the start of the year to less than $2500 at the start of April 2020. Back in 2008 during the global financial crisis, the STI dropped below $1500. In less than 3 years, the STI doubled, recovering to more than $3200. This highlights the great opportunity that investors had in 2008, but of course, hindsight is always 20/20.

You can also start to contribute more into your regular savings plans or start a new investment portfolio with a robo-advisor. You can even consider buying a house when property prices dip. Cash opens up a world of opportunity to grow your money amidst market uncertainty.

What to do if you don’t have cash, you say? 

While we all aim to earn more cash, this might not always be possible, especially when unemployment is expected to increase. Here’s what you can consider doing to keep more cash in your pockets:

1. Cut down on expenses. This is something that is entirely within your control. Reduce spending on your can-do-without-it’s such as dining out, buying the latest foldable tech toy and digital subscriptions.

2. Get side-hustling. Some express side hustle ideas to line your pockets: declutter your room and resell unwanted items, rent out a spare room, become a freelance fitness/yoga instructor (if you’re certified). 

3. Take advantage of your credit card. Chuck your GIRO payments, bus and MRT rides, and daily necessities onto your credit card (a cashback one, preferably) and free up cold hard cash for pressing needs. Don’t forget to pay your credit card bills in full and on time to avoid hefty fees in interest. 

4. Bridge the gap in your cash reserves with a low interest personal loan. Rather than paying 26% to 28% p.a. for credit card interest, you can consider other loan options such as personal loans or 0% interest balance transfers. These options offer lower interest rates and provide you flexibility with affordable monthly repayments over a period of time. 

Read these: 
5 Ways to Cope With Financial Setbacks Hitting Singaporeans Hard Amid COVID-19
Fixed Deposit vs Singapore Savings Bond (SSB) vs Savings Account: Where To Put Your Money?
Best Savings Accounts in Singapore to Park Your Money (2020)
If I Get COVID-19, What Will I Need To Pay?
10 Prudent Things You Can Do With Your Travel Fund If COVID-19 Has Derailed Your Trip

A flat white, an adventure-filled travel and a good workout is her fuel. Sue Mae enjoys sharing knowledge on personal finance while chasing the dream of financial independence.


Use a personal loan to consolidate your outstanding debt at a lower interest rate!

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