Sedona Arizona

Maybe Cash Isn't Trash... This Time

Ever the heard the phrase “cash is trash”? For years that has been the case, certainly since the 2008/2009 time frame when interest rates were too low to pay a cash yield. For the past year or so, this has not been the case. Maybe cash is not trash this time.

In recent years, with rock-bottom interest rates, holding cash offered minimal returns, making it less attractive than stocks and other investments. But the landscape has shifted and has remained different, thanks to higher interest rates. Cash appears to be a meaningful player in the game for longer than we expected, offering a new perspective for investors.

Cash Makes a Comeback

The Federal Reserve’s efforts to combat inflation has translated to better returns on cash equivalents like savings accounts and short-term bonds. While these returns might not seem like much, they offer a level of security and predictability that can be valuable, especially during periods of stock market volatility.

  • Reduced Risk: Cash reserves can peace of mind during economic uncertainty and can help weather market downturns by reducing total portfolio risk
  • Provides Opportunity: Cash can be used strategically to buy assets when buying opportunities arise.
  • Improves Portfolio Diversification: A well-rounded portfolio includes a mix of asset classes, including cash. This helps reduce overall portfolio risk.

Cash as a Strategic Ally

As long as the Federal Reserve maintains its hawkish stance, interest rates are likely to stay elevated. This creates a window of opportunity for investors to benefit from holding cash. It’s important to acknowledge that cash isn’t a flawless solution.

Inflation can still erode purchasing power over time, and there’s an opportunity cost of not being invested in potentially higher-growth assets. In addition, there’s reinvestment risk to consider

Strategic Allocation, Not Mass Exodus

While cash offers advantages in the current climate, it’s important to avoid drastic measures. Selling existing investments solely to hold cash can be disruptive to your long-term financial goals. A more strategic approach is to gradually allocate a portion of your portfolio to cash, maintaining a diversified mix of assets that aligns with your risk tolerance and investment timeline.

While interest rates remain elevated, this is a smart time to revisit your current checking and savings accounts. If your cash is sitting idle in low-yield or no-yield accounts, consider moving it to high-yield savings accounts or money market accounts. This allows you to take advantage of the improved returns on cash while maintaining easy access to your funds. Remember to research and compare different options to find the accounts that offer the best rates and align with your needs.

Our custodian, Altruist, offers a great cash account that is currently paying an industry-leading 5.10% APY1 with excellent flexibility, same day liquidity, and no minimums. Click here to learn more and see disclosures, and you can also click here to discuss your cash allocation and investment needs.  

The Bottom Line: Cash Deserves Consideration

Cash may not be the flashiest investment option, but in today’s economic climate, it offers a valuable role. While not a long-term growth strategy, holding some cash in this economic environment offers several advantages.

Understanding the benefits of cash and its role empowers you to make informed decisions about incorporating cash into your financial strategies. Talk to your financial professional to learn more about how an allocation to cash may fit into to your investment strategy and broader financial planning considerations.

Ready to revamp your investment and cash management strategy? We can help. Click here to schedule time to learn more about our uncommon approach to wealth management.

  1. APY is variable and is subject to change at Altruist’s discretion.  ↩︎

Disclosures

Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.  

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Author: Dale Shafer II, CFP®, APMA®, CDFA®

The National Association of Personal Financial Advisors
The Society of Advice

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