Today, we are going to talk about cash. And the burning question on every investor’s mind is: Should I invest my money in cash right now?

So, let’s define Cash as an investment category. It includes money market funds, CDs, High Yield Savings, and US Treasuries. These Cash investments are all offering a sweet 5% yield with little to no risk. Sounds like a no-brainer compared to the rollercoaster ride of the equity and bond markets, doesn’t it? I mean, who wouldn’t be tempted to ditch their current investments and jump on this supposedly lucrative option? It’s a scary out there, I get it! Before making any drastic decisions, it’s important to ask ourselves a few questions.

What are your financial goals?

We all have different priorities when it comes to our money. Maybe you have upcoming college costs, dreams of downshifting from your career, or even buying a second home. And of course, there’s the never-ending stream of bills that keep getting more expensive. Thanks, inflation! Most of us aren’t aiming to be the richest person in the world; we just want to reach a point where we feel financially secure in retirement and can live a comfortable lifestyle. So, go ahead and list your financial goals in order of priority. Don’t stress too much about getting it perfect. Just think about what truly matters to you and start from there. And remember, it’s okay to change your mind along the way.

What is your time horizon for each goal?

Generally speaking, if you need to use the money within the next 5 years, it’s best to keep it in cash. Think emergency fund, down payment for a home, or your high school junior’s college education costs. Lucky you! Cash is outperforming any other asset class right now!

But what about money that you won’t need for 5 years or more, like when you’re planning to downshift your job? Well, cash won’t quite cut it for those long-term goals. Historically, cash has done a terrible job at keeping up with inflation. Your best bet is to invest your long-term money in assets like stocks and bonds. Yes, they may fluctuate more than cash, but they tend to deliver higher returns over time. Time is your friend.

What if my financial pain point is the volatility of the markets?

Your investments aren’t just numbers on a screen; they represent your hard work and dedication to securing your financial future. Seeing those investment balances dip can be painful and trigger all sorts of fears. Fear that all your efforts will go to waste. Fear that you and your loved ones won’t be okay because that money is gone forever. It’s only natural to want to do something to alleviate that pain and fear. Managing this fear is the toughest part of investing. Long term investment success is dependent on managing this fear.

There are plenty of books to help you navigate this emotional rollercoaster. Two of my favorites are The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money and The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness.

 Some people find that they need a financial advisor to guide them through these tough times. According to a Vanguard study, investors with financial advisors tend to achieve up to 3% higher net returns than those without. And guess what? A significant portion of that benefit comes from behavioral coaching. Providing guidance and discipline can make a world of difference.

So, while a 5% return from money market funds may seem tempting, it’s crucial to remember that investments are not a one-size-fits-all solution. Take the time to make informed decisions based on your own unique circumstances. Patience and a strategic mindset are key to successful investing. Keep educating yourself, seek guidance when needed, and stay committed to your financial goals.

Here’s what some smarter folks have to say about Cash…

Investors Should Fight the Temptation of Cash

This Financial Times article was written by Karen Ward, a Chief Market Strategist for JP Morgan Asset Management.

Should I Ditch Bonds for Money Market Funds or CDs?

The stock market is not the only one taking a beating. Bonds have been getting kicked in the teeth too.

How to Use Cash in a Portfolio

As usual, Morningstar does a great job explaining the pros and cons of cash and how it fits in your investment portfolio.

On a personal note, I’m thinking of my friends and their loved ones as I see and hear about what is happening in Israel. May peace come quickly.

Disclosures: BW Financial LLC dba BW Financial Planning is an Investment Adviser registered with the State of Colorado. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication’s conclusions. This communication is for informational purposes only and should not be construed as legal, accounting and/or tax advice. Should you have any questions and/or issues in these areas, please consult your legal, tax and/or accounting adviser.