Financial Advice Blog

Out of the Mattress and into the Market?

by Community Manager  |  ‎11-25-2013 08:09 AM


Sitting on cash? You’re not alone.  It’s everywhere -- in IRAs, retirement plans, bank and investment accounts.  Heck, we’d even be so bold as to speculate that there are more than a few mattresses out there hiding their share of currency.


All that cash despite today’s rock bottom interest rates!


Still, we can see why it’s happening--even if we don’t think it makes a whole lot of sense in some cases.  But people are afraid.  They’re afraid of bonds because rising interest rates could send them into the tank.  They’re afraid of stocks because the run-up in recent years makes them seemingly ripe for a turn south.  Add in the turmoil in Washington and it’s not hard to see why people are hesitant to take action-- any action. 


Possibly compounding the issue is the fact that our market experts here at USAA anticipate that rates will begin to rise in the not too distant future, but will do so only gradually over the next two to three years.


So then, what should you do if cash is your current king?


Ask yourself, why the cash? The first step is to figure out where you stand in relation to your goals and determine if the returns on cash are going to get you there.  Simply burying your head in the sand and waiting for rates to rise is not a plan.


It may be that a portion if not all your cash is right where it should be—safe, liquid and stable.  That’s certainly the case for rainy day funds or money set aside for the next couple of years. But it’s probably not true for money that’s earmarked for your longer-term goals. The wait for higher rates may leave you with your hands still in your pockets several years from now, because there’s one certainty with all of this: No one has a crystal ball.


Incorporate short-term bonds. If you’re willing to accept the potential for your principal value to fluctuate and even go down, you may be able to squeeze out some additional income by moving some of your cash to short-term or ultra short-term bond funds. This is an option that you should review with your financial advisor because you need to understand the additional risks you’d be taking.


Shift to equities. Equities are a huge leap from cash but they might make sense for a portion of your cash that is targeted for long term goals. For example, cash held in an IRA or retirement plan. The reality is that we’re all living longer and the growth potential of stocks may help you achieve your goals, despite offering what will likely be a bumpier ride.


Use some of both. Ultimately, if you’re going to get into--or back into--investing, there’s probably not just one solution. As always, it’s best to build a diversified portfolio. You remember that concept, right? It’s a mix of different types of stocks, bonds, cash and alternative investments.


One thing you don’t want to do is put yourself in a bad position in the quest for higher rates or returns.  Funding short-term savings goals with long term investments can be a recipe for disaster. Would you put next month’s mortgage payment in the stock market? We hope not! You want your investments align with your goals. Along the same lines, leaving money earmarked for long term goals in cash will likely lead to a situation where your portfolio is outpaced by inflation. It may feel safe, but you’ll lose purchasing power over time.


In the end, there are no easy answers. But if you’re sitting (or sleeping) on a pile of cash, one thing does make sense:  Revisit your overall saving and investing plan.  It also may be a great time to talk to a financial advisor who can help you step back and take an unemotional look at where you stand and what’s been going on.


Is all that cash the result of a well-thought-out plan, or is it a byproduct of fear, concern and uncertainty?  If it’s the first, you’re most likely still OK. If it’s the latter, you’ve probably got some work to do.  And remember, you never have to go it alone. You can always turn to an advisor when you need a hand. After all, that’s what we’re here for.





Additional Disclosures 

  • This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing.  
  • Investing in securities products involves risk, including possible loss of principal.
  • Past performance is no guarantee of future results.  
  • As interest rates rise, existing bond prices fall. 
  • Some income may be subject to state or local taxes or the federal alternative minimum tax.




Further Information

Community Managers
Scott Halliwell

Scott Halliwell is a CERTIFIED FINANCIAL PLANNER™ practitioner.

View Scott's Profile
J.J. Montanaro

Joseph "J.J." Montanaro is a CERTIFIED FINANCIAL PLANNER™ practitioner.

View JJ's Profile