By With market news coming fast and furious these first few weeks of 2024, I’ve been getting lots of messages from clients about what it all means for their own accounts outside of just their investments.
Since the pandemic, more and more people have been sitting on higher cash reserves than they used to, and the current interest rate environment has provided a unique opportunity to grow that cash relatively safe and low risk. In this edition of Dave’s Inbox, I wanted to address a couple of questions I’ve gotten repeatedly.
As a recent empty-nester, I’ve found myself with more cash on hand than I used to have when I was supporting a whole family. What do I do with it? I’m nearing retirement and don’t want to dump it all into a historically high market in case it drops in the next couple of years.
As 2023 ended, I kept getting question after question like this — is there something else I can do with my cash? They may need it for an event 3-4 years down the road, but they want to have it accessible in case something goes sideways.
The number one thing we’re doing at FFP right now is reminding clients to audit their bank accounts — not just looking at the yield on their savings account but looking at their CDs and what rates other places offer. What did they make in 2023 accounts that are in cash?
This audit has prompted many people to move a lot of their cash to money markets, which some are yielding around 4.9% as of this writing. For people who have $100k sitting around, that’s almost $5,000 per year.
And that opportunity isn’t just for retirees. If you’re saving for a down payment, a tax bill, or another payment that you know is coming up, this could be a great way to raise extra cash that’s still readily accessible exactly when you need it.
The next question is a natural follow-up to the first:
When are these rates going to decline? I bought a house in a bigger city to be closer to my grandkids, and I would love to refinance.
Based on the latest Federal Reserve meeting and this week’s CPI report, our opinion still holds that while the Fed has said they will cut rates in 2024, it appears that they’re in no rush. But this doesn’t mean that there aren’t still opportunities elsewhere in the market.
As many of you who have followed my writing know, when people were pouring money into treasury yields that had hit 5%, we suggested that it might be a good time to invest in growth stocks instead.
Whenever yields get that high, the natural thing to do is look at money markets. But the other side of that equation is that there is a time when you can have too much money squirreled away at that percentage. When the rates are this high, there are likely other places where this money may potentially grow even faster. Now, that’s not a blanket recommendation — it’s just a conversation that needs to happen. Feel free to shoot me a message so that I can give more specific advice on your individual situation.
I see no reason to be skeptical of what the market is doing right now. Yes, some businesses have a higher capital cost right now. But many big businesses that don’t carry much debt are humming right along, paying dividends and buying back their company stock.
Not to mention, money sitting in the bank is earning around 4-5%. This is likely a temporary scenario, but it’s real. That retiree might take that extra $5,000 they made in interest and spend it in the economy somewhere. As long as you don’t have too much debt, you’re probably not being squeezed at all. The wealthier you are, the wealthier you feel.
If you are a recent retiree or someone within 10-15 years of retirement, we’re big believers in getting you all the help you need to have your best retirement. Download our workbook to help ensure that you’re optimizing not only your finances in retirement but also your social, physical, and legacy health.
All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.