Should I keep It All In Cash?

Along with most of the country, I went to see the new Barbie movie with my family this past weekend. Without risking any spoilers, one of the scenes in the movie that made me laugh out loud was when one of the Barbies asks one of the Kens “I shouldn’t keep everything in cash?” Obviously meant to be facetious, this exchange isn’t that far off from conversations I have with clients. So what is the correct answer? How much do you keep in cash? Why not keep it all in cash?

1. How much do you keep in cash? I am a big believer in knowing your numbers. What does this mean? While many cringe at the word, I like budgets – what is it that you spend money on and what are your core expenses? While our overall numbers can fluctuate from month to month, we tend to have our “core” expenses that stay consistent. For example, rent/mortgage, insurance payments, utilities, etc. These are the payments that you must make each month and I refer to them as our non-discretionary expenses. Unlike going out for dinners or shopping for something we want, we do not usually have much choice or discretion with regards to these expenses. If you add up these numbers, this is your baseline budget and an important number to know. Why? No matter what happens, these same expenses will be there next month. And as we know, sometimes things happen. One of the first goals I work on with clients is to make sure that we build an emergency cushion for when they do. A good rule of thumb is to keep 3-6 months of these core expenses in cash, in case of emergency. If something happens to your job and you are not able to find something else for a few months, it is important to know you have a cushion to fall back on to cover your expenses until you are back on our feet.

2. Why not keep it all in cash? With the recent rollercoaster we have all been on with the markets, why not move it all to cash? Unfortunately, none of us have a crystal ball and know what the next few months or years have in store for us. And while cash may seem the safest, there are some things to consider:
   1. The interest rates we are seeing now in CDs and bonds are attractive (Ken also brings this up in the movie). If it is money that you are not comfortable investing in the markets or may need in the shorter term, it makes sense to explore other opportunities for your cash. While keeping overall risk down, there are opportunities to lock in higher returns using these products.
   2. It is very hard, if not impossible to time the markets. While some may get it right sometimes, the odds of always being right are low. If you have cash that is earmarked for longer time horizons, investing in a balanced portfolio or a portfolio that fits the risk level with which you are comfortable may allow for much greater growth potential.
   3. If you still feel like cash is the best option for you, know your FDIC insurance limits. The recent banking crisis brought attention to this. There are limits on how much cash is protected in your bank account by FDIC insurance. Based on how the account is titled (whose name it is in) and the type of account (single, joint, IRA, etc) it is important to keep track that you stay under the insurance limits – specifically $250,000 for individual and $500,0000 for joint accounts by institution.

Any opinions are those of Julia Prisco and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. This information is intended to be educational and is not tailored to the investment needs of any specific investor. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not indicative of future results.