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Cash is King
My Latest
Cash is King
Lessons Learned and Cash Positions
A Money Question
My Latest
This month one of my favorite pieces of content was a video I put together on questions you should ask a financial advisor.
I always found it hard to know what questions to ask and this video dives into 10 questions to ask.
You can check out the video below. 👇
Cash is King
I am going to let you in on a little secret. One of my biggest blind spots when it comes to investing is always investing my cash. Seriously, I have always hated having cash. Give me two weeks and I will find something that I should invest it in.
The peace of mind of having cash has never outweighed my FOMO of missing out on potential investment returns.
In my defense, I have grown up in an era where cash paid nothing (until recently) and the economics of investing have produced far better outcomes. Remember, how we talk about how our personal experiences shape our view of money. Well there you have it, my experiences have said don’t keep cash (it earns nothing).
The reality is cash plays an important role in our overall financial picture. A lesson that I have learned the hard way a few times over.
In today’s newsletter, I want to discuss those lessons and the best options for your cash position.
Let’s dive in!
Lessons Learned and Cash Positions
For most of my life, I have had to learn lessons by doing. This is part my wiring and part being thrust into “real life” as an 18-year-old.
As always, the lessons I share with you are from earned experience.
3 lessons I have learned about cash:
It Enhances Returns
I used to think about cash as this drag on my returns. Sure it doesn’t earn equity-like returns over decades but it does something else equally as powerful.
It allows your risk on positions (equities, real estate, etc..) to compound without the potential of having to sell in a down market. That can be the difference between staying in the game and selling out at the bottom.
You Never Know
We talked last week about risk. Risk is what is left after we have accounted for everything. Even the most well thought out plan will hit unexpected turbulence.
Cash is the gap that allows you to change course, get back to your cruising altitude, and recalibrate the controls.
The Opportunity Cost
Think of the best investment opportunity you have been presented. Chances are you didn’t have that investment dialed in days, weeks, or years in advance. It was a collision of worlds, economic times, and connections that led to it.
Well, the only way to capitalize on those opportunities efficiently is to have a cash position. So while most think of the opportunity cost of holding too much cash (which is real), we must also consider the opportunity cost of not holding enough cash.
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Cash Positions
We have established why having a cash position is a must. This does not mean we have to leave our cash earning nothing.
This is one of the biggest mistakes I see potential clients make. They check the cash box but they have it earning next to nothing.
Here are three of my favorite options for cash:
High Yield Savings Accounts
Currently, these accounts can earn ~5% on your cash position. Perhaps, more importantly, they are easy to set up and access the funds.
The interest earned from these accounts is taxable.
Money Market Positions
A money market fund invests in short-term debt instruments often overnight reserves or commercial paper. This means it can fluctuate in price but on the investment spectrum is considered quite conservative.
Depending on the type of money market position the interest earned from these positions can be taxable or tax-free.
Treasury Bills
A Treasure Bill or a T-Bill is issued by the federal government with a maturity of one year or less. These can fluctuate in price but are backed by the federal government.
The interest earned from T-Bills is free of local and state tax but taxed at the federal level.
Each of these options should be explored and all three provide optionality to keep your cash position earning market rate.
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*🚨 One key point ~ If you work with a financial team double check what your cash position is in. Far too often, hidden fees are being assessed to clients holding cash with their financial advisors. You want to make sure you are earning market rate on your cash (around 5% today). I see far too often clients earning 1-2% while the custodian/bank is earning the additional 3-4%.
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Cash is king.
It provides optionality.
It decreases overall risk.
It allows your risk on investments to grow.
It also can be a psychological barrier to holding a large cash position.
Focus on building it anyway. Come some unexpected turbulence, you will be thankful you did.
Until next time my friends!
A Money Question
What is your cash strategy?
I believe that we have to give our money direction. Imagine walking into the gym with no direction, you would walk around aimlessly jumping from machine to machine. Sure you got a workout in but it you could have been far more efficient. The same is true for our money, especially our cash.
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Moment Private Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. Moment Private Wealth provides investment advisory and related services for clients nationally. Moment Private Wealth will maintain all applicable registrations and licenses as required by the various states in which Moment Private Wealth conducts business, as applicable. Moment Private Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or under an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.