How Much Are You Losing to Idle Cash?
There’s no denying it, it’s thrilling to see the balance increase in our bank accounts. Seeing a lofty number makes us feel secure, and ensures we have cash ready and available should we need it. But could keeping all that cash in your account be keeping you from greater returns in the long-run? Unfortunately, yes.
When you have more cash sitting in your bank accounts than you need, you are not maximizing its potential. But if you put your idle cash in play, you are giving your money the opportunity to bring in returns and increase your overall wealth.
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Origins of Idle Cash
Idle cash can build up in a variety of ways. Young professionals earning more money than they are used to can let cash pile up in their savings because they don’t know how to make it work for them. Experienced investors may not even realize they have idle cash sitting around from dividend payouts that aren’t automatically reinvested. Cash from passive revenue streams, such as rental properties, may not be integrated into your investment portfolio and could be actively dragging down your return potential.
Regardless of where the cash is coming from, having too much of it idle in your portfolio is not a wise financial strategy. But how much cash is too much? You want to make sure you have enough to help you through an emergency, so it’s recommended that you have at least three months worth of easily accessible funds to cover everyday expenses. Other than this backup cash, the amount of idle money in your portfolio should be limited.
Stay On Top Of Your Accounts
According to the CFA Institute, portfolios of actively managed funds typically carry a cash position of about 5%, causing the funds to lose a portion of the long-term equity premium. Do you know how much idle cash you are carrying? Evaluate your portfolio as soon as possible, because the excess cash sitting in your savings is losing the fight with inflation.
Inflation has increased costs, and the value and purchasing power of $100 today is very different than that of thirty years ago. Cash has a near zero expected return, so holding onto excess cash for the long-term is like throwing it away. What can you do with the extra cash? How do you reinvest it so that you maximize its return?
A Better Alternative
At Sportfishing Financial, we strive to find the best way to put your money to work and ensure that your investments are aligned with your current needs and future goals. Whether you are saving for your child’s education, strengthening your retirement accounts, or wanting to purchase a home, we want to see your investments reach their potential.
The cash that’s accumulating in your checking or savings account yields little to no interest, so if you need cash readily available, consider investing in short-term securities. These type of investments can be liquidated in less than a year but earn better returns than money collecting dust in your savings account.
Municipal bonds, real estate, and savings bonds are all excellent long-term investment options if you are in a position to limit access to your funds for an extended period of time. These types of investments require commitment but can be lucrative if held until maturity.
How We Can Help
If you think your portfolio is cash heavy, we can help. Our team can show you the potential returns that could be lost by holding cash long-term. We also assess your portfolio allocations to help you determine the most prudent investment strategy to leverage maximum profits from your cash.
You may not realize it, but holding onto idle cash can significantly impact your bottom-line. Talk to us today to find out if idle cash is affecting your return potential. Set up an appointment by calling me at 949-481-1807 or emailing This email address is being protected from spambots. You need JavaScript enabled to view it. so we can make the most of every dollar.
Meet Rick
Over a 25-year career in financial services, Rick has helped hundreds of business and personal clients meet their investment goals by developing risk-efficient portfolio management strategies. He holds degrees in Economics and Psychology from the University of California, Irvine.
The water is Rick's second home: He and his family have been fishing Southern California and Baja going on four generations. In the 1940s, his grandmother worked at the Cannery Restaurant in Newport Beach—when it was an actual Albacore cannery. In the 1950s, his father was on the crew that built two of the boats still in service at Dana Wharf Sportfishing.
To schedule a complimentary wealth consultation or to get a second opinion on your financial plan, contact Sportfishing Financial today. To learn more about Rick, visit his website and connect with him on Facebook. To ask a question or get our list of upcoming fishing trips, call 949-481-1807 or email This email address is being protected from spambots. You need JavaScript enabled to view it..