If you are an investor feeling shaken by recent market volatility, you may be considering placing your money in a CD or money market fund. While these investments may offer current yields, they come with risks, which means they may not be the best solution for your long-term investing goals. The following three strategies should be considered before making any decisions to “move to cash” or cash equivalents.
Firstly, it’s important to ask yourself what your actual liquidity and cash needs are. Many clients have a tendency to over-invest in cash, viewing it as a safe approach. However, in the long run, this could be a detriment to your investing goals, particularly with high inflation rates. Instead, consider a 60/40 portfolio, which has traditionally offered reliable and consistent returns, reducing many types of risk. Creating a financial plan allows us to demonstrate the need to beat inflation and highlights the long-term nature of investing.
Secondly, rather than investing in CDs, consider other options for short-term strategies such as money market funds. Money market funds are more nimble at passing on any changes to the Federal Reserve’s benchmark interest rate than banks are. Municipal money-market funds (formerly a backwater area of the market) offer investors an alternative to the much larger universe of taxable money-market funds. It’s important to do your homework when considering cash-management strategies as current yields may not be around for over a few months. So this is something to consider when reviewing these shorter-term strategies.
Finally, consider investing in international markets and daily liquid alternatives to round out the investment lineup. Investing in international markets can provide diversification benefits and access to new growth opportunities. Daily liquid alternatives, such as exchange-traded funds (ETFs) or mutual funds, offer flexibility and easy access to a range of investment options. Ultimately, we want to help you carefully evaluate your investment goals and risk tolerance before making changes to your portfolio.
It’s important to think long-term when considering investment options. Instead of focusing solely on cash or cash equivalents, you should consider actual liquidity and cash needs, explore other short-term strategies, and look into international markets and daily liquid alternatives for diversification and strong risk-adjusted returns.
We are here to guide you through these decisions and ensure that you make the best choices for your long-term investing goals.
As always, please reach out with any questions.