According to a recent study from DataTreck, there are $3.4 trillion in money market funds as of the first week of October 2019, which is 14% higher than in 2018 and has risen every week since May 2019.1 While moving to cash may be the idea of safety for some, you are actually going backwards in your purchasing power.
Hearing people say their money is not only in cash, but they are also pulling from it, makes me want to pull my hair out. Not only are you taking away from your retirement fund, but you’re not getting anything in the first place.
Running out of money is the #1 fear of retirees.2 There’s no better way to run out of money than parking it in cash that makes little to no money, and then pulling from it.
You’ve got to put your cash to work. Some things to think about are market-protected index investing, paying down debt structures, and your mortgage. With interest rates being as low as they are, we think it’s wise to conservatively invest your funds and use the interest as a tax deduction. If you’re concerned about the market or investing in general, we would suggest using your funds to pay off your debt structure.
The goal should be to make at least 3%-5% on the money you have invested. There are investment options out there that people refuse to consider or don’t know about. You can get participation in the markets. No, you probably won’t make 20% when the market goes up that much, but you can benefit from market growth.
An example would be a client of ours who had $250,000 of his money in cash and the rest in companies like Amazon and Netflix. He didn’t realize how much of his money he had at risk. We advised him the best thing to do is squeeze the money in the middle. That means lower risk in stocks and putting his cash to work in a product or investment that has market protection, but has the potential grow with a chosen index.
If you are an investor who relates to the above example and has a majority of your investments in cash, you need to get an idea of what cash management is. People will call to schedule an appointment with our advisory team when they have a pension event or the market loses a significant percentage, but when they park their money in cash, they won’t call. They feel comfortable with having their money tucked under their mattress, which is a bad overall plan.
The key point is holding your money in cash is holding your money back. Making your money work for you is crucial. It’s not enough to tuck your money away under your mattress. You have to let it grow in order to provide sufficient income for your future.