Seek Liquidity For Short-Term Investments

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The stock market may not be the right investment for all of your money at all times. Here are two situations when cash accounts can be a better solution.

Situation #1. Generally, the stock market is not a good place to invest funds you will need during the next two to three years, such as when you need to pay ongoing living expenses in retirement. In that case, the money you’ll need would be better stashed in stable investments such as money market funds, bank CDs, or bonds with maturities matched to your needs. The idea is to eliminate the risk that you’ll be taking withdrawals when the stock market is depressed.

Situation #2. Your emergency fund – three to six months of current living expenses – has one purpose: to provide the money you might need for crises such as job loss, illness, or major unexpected repairs. These are situations when you can’t afford to wait until the market recovers to get your funds.

Cash savings do carry risks, such as losing purchasing power during times of inflation. And historically, the stock market has provided superior returns over long time periods. But those returns come at the price of volatility. If you need to withdraw your savings during a market downturn, you might not recover your investment. Wherever you choose to invest your other savings, consider keeping some of the funds you will need in the short-term in less volatile, old-fashioned cash investments.

For assistance in choosing the right investments for you, contact our office today!

 

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About the Author:

Charlotte founded the firm in 1984. She has over 30 years of industry experience including 11 years working on audits of municipalities in Northern California. She has had extensive experience working with individuals, corporations, estates and non-profits. Charlotte graduated in 1982 with a BS with majors in Accounting and Business Administration from Central Washington University.

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