How To Use Cash As A Pillow by Umar Saeed

Here’s what the Investment Industry never tells you about Investing: You may miss out on life. Without precise plans for your savings, Mutual Funds can lure your idle cash with their lucrative long run performance. When stock markets are confused and volatile as they are now, financial advisors will remind you that these are simply bumps in the road to prosperity. Investment has become so commonplace that Canadians don’t think twice when making an RSP contribution as to whether or not that money should live in the markets. How did investing become so ubiquitous?

The power of all personal financial advice has its roots at the University of Chicago, where Harry Markowitz spawned Modern Portfolio theory in the fifties. While there has been considerable criticism as to how well the theory holds against reality, Markowitz’ original concept of the Diversified Portfolio remains at the core of personal investment planning.

Among others, David Chilton later popularized a slice of Portfolio theory in The Wealthy Barber, providing a prototype for retirement plans. By taking that portion of your savings which you promise to never miss, systematically purchasing stocks with it through the good times and the bad, and watching years turn into decades, your money will have earned the highest financial reward possible at the end of your career’s rainbow.

The impenetrable logic of markets always rising in the long run is exactly what tempts your unmarked savings towards Mutual Funds. Stock markets have proven that despite the panics, frauds, meltdowns and bubbles, if you wait long enough, your stock portfolio will ultimately persevere. But be warned, investing in the markets for ultimate retirement is not the same as setting aside money for the future.

Market investment is a commitment that ranks right up there with marriage and stubbornness. In the spring of 2008, Baby Boomers expecting to retire kept their nest egg in mutual funds. They were reminded exactly what kind of a commitment they had made as both stock and bond markets crashed. For them, the long run can’t come soon enough.

Stock market investment has been institutionalized in the banking industry. You are urged to invest in Mutual Funds the moment you have savings to spare. Despite creating mutual funds to suit different personalities, they all have the same disheartening quality: when the markets tank, so will your investments. It is an unambiguous feature of investing – you can’t withdraw your money during a depressed market, unless you’re prepared to lose some of it.

The more savings you have in Mutual Funds, the more restricted your life is. Job stability is a requirement because your investments are not an umbrella for tomorrow’s rain. You’re not purchasing a house or “maybe” starting a business in a few years. Investments should be left behind when you leave to work abroad. The more you store in that mutual fund, the less flexible and spontaneous your life becomes.

This is not to doubt the theory. Canadian equity index portfolios all illustrate a definitive rise over a long time horizon. Nobody is losing money if you’re talking about fifteen years of stock market commitment. If you’re prepared to part with a portion of your savings indefinitely, this plan works like a charm. But don’t mix up money that you might need with money that you can forget about.

Remaining flexible in a changing economy means drawing a line in your savings account, and settling for that trivial amount of interest your bank insists is “high.” It also requires that you forget about all the money you won’t make in the stock market. Career change, leave of absence, paying down the mortgage, working abroad, starting a business, buying that dream house requires that you be supple and uncommitted.

Rest assured, you will be sacrificing market gains for life’s rewards. Savings can be a bridge to a job on the other side of the ocean. Cash is a pillow for nights when the morning is uncertain.


Umar Saeed is an accomplished professional in finance and accounting. On his website (, where this post originally appeared, he writes essays to explain the elaborate connections between people and money, without making your head hurt. You can follow him on Twitter @UmarSaeedCA. Or you can read the rest of his posts at The Little Red Umbrella here.


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