What a wild week it was! Last week, the US bumped off Osama bin Laden. Silver collapsed. Unemployment looked terrible on Thursday…and better on Friday.

Stocks looked like they were in trouble…but then seemed to stabilize by week’s end.

And President Obama suddenly became The Decider.

What do you make of it? Or, a more practical question, if you’ve got money to invest, what do you do with it?

On Friday, gold closed at $1,491 – about 5% below its all-time high. Buy it now? Or commodities, when they too seem to be coming off record highs? Oil was down 10% last week. Buy stocks – when all the evidence shows that they are vulnerable to a big downswing…and will probably produce sub-par returns for many years?

What’s the alternative? Hold cash!

But wait. Who wants to hold dollars (or other paper currencies, for that matter) when inflation rates are rising…and the dollar is currently losing ground at the rate of more than 7% a year (according to MIT’s Billion Prices Project)?

A tough situation for investors. Damned if you do. Damned if you don’t.

Here’s our old friend Merryn Somerset-Webb, editor of MoneyWeek, on the subject:

Why you should hold cash

A long-term property bear told me this week that he was going to buy a flat. Why? He can’t bring himself to keep his money in cash when savings rates are 3%, inflation is 5% and income tax is 40%. But he can’t bring himself to buy much else either: most equities look overvalued; commodities could easily be on the edge of another cyclical peak; and there is only so much gold a man can hold. But his money “has to go somewhere”. And at least property offers some kind of yield.

I can see his points – holding cash in an era of negative real interest rates can feel painful. But what if it’s the least bad option? Dylan Grice of Société Générale points out that while it’s true cash “generally has a zero expected real return”, there is at least a “near-certainty around that expected return”. Mostly if you hold cash you know you won’t make money, but you won’t lose much either.

That’s not usually good enough. Most of the time, risk assets return more than 0%. So it makes sense to be biased towards equities, bonds, commodities, houses and wine instead of cash. But there are also occasions when risk assets are unlikely to return more than zero – times when the risk of losing money in non-cash assets is so high that it makes more sense to aim for a zero return than a real return. Now, says Grice, “might just be one of those times”.

Merryn is probably right. At least, that’s what we concluded at the Family Office too. The Bonner family holds an uncomfortably large amount of its portfolio in cash.

It is uncomfortable because we believe cash will soon be the very worst place to keep your money.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.