Final answer:
True, not investing can be a bad idea because inflation reduces the value of cash, leading to decreased purchasing power over time.
Step-by-step explanation:
The statement made by Rose Han is true. Not investing at all can indeed be a poor financial decision due to the impact of inflation on the value of cash. When inflation occurs, the purchasing power of cash diminishes, meaning that the money you hold is capable of buying less over time.According to Rose Han, not investing at all is not a good idea because inflation reduces the value of your cash. When inflation occurs, the buying power of cash diminishes, which means that the same amount of money can buy fewer goods and services. For example, if you have money in a bank account that pays 4% interest while inflation rises to 5%, the real rate of return for the money invested in that bank account is negative 1%. Therefore, investing your money in assets that can keep up with or outpace inflation is important to maintain its value over time.
For instance, if you have money earning 4% interest in a savings account and inflation rates jump to 5%, your real interest rate would actually be negative 1%. This scenario effectively makes your money worth less because of inflation. Those holding onto cash or low-interest-bearing accounts are affected negatively, as their returns do not keep pace with the inflation rate. On the other hand, borrowers benefit from inflation since they can pay back loans with money that is less valuable than when they originally borrowed it.