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Investing Blog Roundup: Cash Makes People Happy

The conventional wisdom of finance indicates that the ideal amount of cash (i.e., checking/savings balances and other very safe, low-return investments) to keep on hand is the minimum amount that is necessary to avoid exposing yourself to undue risk. Anything above that amount should be invested in order to earn a higher return.

This week, however, Michael Kitces draws our attention to a study (pdf here) showing that cash on hand (in the form of checking/savings account balances) has a much stronger correlation to both sense of financial well-being and overall life satisfaction than many other financial measures, including total investments, monthly income, or indebtedness.

In short, holding cash tends to make people happy, even when they have significant other assets and don’t really have a true financial need for a large cash balance.

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