I enjoy collecting ancient coins because I love history as well as the financial lessons old coins can teach. Many of my coins are from ancient Rome and as such are engraven with the image of Caesar. This was appropriate since coins were largely invented to benefit the ruling class. It gave the ruler control over the economy and facilitated the collection of taxes. (The palace could only hold so many chickens and goats) With control of the currency, Caesar could basically create all the wealth he wanted. He could also, by use of taxes, order that wealth transferred back to himself. I actually have a solid silver denarius with the image of the biblical Ceasar Augustus on it, who famously ordered that all the world should be taxed. I look at that coin today and wonder if some poor soul might have once painfully paid his taxes with it.
As the Roman empire grew so did Caesars’s army, and the need for more silver to pay the soldiers. Unfortunately, silver was in short supply and so Caesar cleverly decided to reduce the amount of silver in each coin. By the 3rd century AD, the once respected Roman silver denarius went from being 95% pure to only containing a thin silver coating over a copper coin. Does a silver plated copper coin sound familiar? No longer holding any intrinsic value, the Roman denarius was accepted and traded only as long as people had faith in the government that backed it. It should be no surprise that under these conditions the various Caesars struggled to maintain the loyalty of their troops, who knew they were being paid with phony money.
I am often asked how much cash a person should hold. This is a difficult question since most people really like cash. Cash is fun. Cash is liquid. Cash feels safe. But there are definite downsides to cash. Cash does not grow. In fact it shrinks daily with inflation. Cash is bulky and not always easy to carry around. Cash can be stolen and is difficult to recover if it is. Many hold their cash in safe places like a bank or brokerage account but these cash hoards are also subject to many of the same downsides as holding physical cash. Over time the spending power of cash tends to erode.
My advice is to recognize that cash in all its forms has no intrinsic value. Like Rome of old, its perceived value fluctuates with the strength of government. As more currency is created, and as governments struggle with massive debt loads, the currency in circulation is at risk of losing perceived value. Ironically, though conservative investors often view cash as a safe haven, the opposite may be true. Be careful about holding too much of your portfolio in cash for extended periods of time. As we can learn from the Romans, currency backed by the full faith and credit of any government is not always as safe as one might hope.
Hi, I'm Dan. I'm a CFP® Professional.
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