Money In Your Mattress Is Not A Good Investment Strategy

The headlines are scary. Big-name financial institutions are failing, and even the safest of investment havens — the kind where losses are supposed to be inconceivable — have been the subject of ugly news. It's enough to make investors want to take their money out of the market and stuff it in their mattress, piggy bank, or in jelly jars buried in the side yard. Any one of those steps would be stupid. "Going to cash" is one thing — a strategy some people are using to insulate themselves against the short-term volatility of the stock market. "Taking your cash" is something entirely different, and judging from what people are saying, it's happening now in a misguided effort to get what "Frank the bus driver" described to me as "the ultimate protection." Putting money in a piggy bank, under normal circumstances, hardly rates as an "investment," but the people who are pulling the proceeds of big investment accounts are making a decision that could have a long-lasting impact on their finances. Moreover, they're not stuffing the mattress to save for a rainy day but instead are acting as if the apocalypse has arrived and they want a big horde of greenbacks in their bomb shelter. Emotions — most often fear and greed — rule investment decisions, and pulling the money out of all financial institutions, or even most safe havens like money-market funds, is clearly a case of running scared. Yes, some money-market mutual funds recently broke the buck — their commercial paper is deemed worthless or they were closed after they suffered a significant run on assets. It's heavy stuff, in part because safety-conscious investors feel violated, like someone broke into their piggy bank. But now is not the time to jump out of the speeding car. You won’t like the landing on the side of the pavement.


Putting your money in the mattress faces its own set of risks — everything from theft to fire to loss of purchasing power by not even attempting to keep pace with inflation. It may feel good while you do it, but it's not the right move for the long haul, even in these troubled times. That doesn't mean someone who is nervous now needs to be fully invested, or that they should not go to cash if that's what makes them comfortable with part or all of their money. It means that it's silly to suffer the loss of 2 percent or 3 percent — the amount you might get from a money-market fund or a bank deposit account — to avoid the chance of taking a loss that is not likely to be even that big. Giving up isn't much of a strategy right now, and knee-jerk reactions to go to safety aren't that smart, if you have done your homework and have taken steps to make sure you are safe.For investors wanting to go a step further, consider Treasury-only money funds; stick with the biggest fund companies, which have always bailed their money funds out of any troubled paper; or move into banks to gain the protection of the Federal Deposit Insurance Corp. Just don't bring the cash home, where it faces far more risks than it does in the market.