Is Your Fear of Investing at the Top Costing You Money?

Know How Much Cash You Have

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 quickly, because the excess cash sitting in your savings is losing the fight to inflation.

Think about it, the value and purchasing power of $100 is very different today than it was 30 years ago (I actually muttered these words on a recent ski trip with my kids “Ya know, I remember when ski lift tickets were less than $30!”, which makes me officially “old”). Holding on to cash in the long-term, without earning interest on it, is like throwing it away. The extra cash in your portfolio can be reinvested in a variety of ways in order to have your cash make money for you in the long-run.

Make Your Cash Work For You

Here at Pathway, we can help you determine the best way to put your money to work that is aligned with your current needs and goals for the future. The key is to think long-term. What are your goals? Are you going to retire soon or are you just beginning to save for your first home? Ask yourself if your short-term needs can be met without access to your extra cash. The answers to these questions shape and direct your cash investment strategies.

Cash in your checking or savings account yields little to no interest, so investing in short-term securities–such as short-term, high-quality bond funds–is a smart move if you need annual access to cash. These type of investments are stable and can be liquidated in a matter of days, but earn more returns than money collecting dust in your savings account.

Stocks, riskier longer-term bonds, municipal bonds, and real estate 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 (we recommend at least 10 years for these kind of investments). Investments such as these take commitment, but can be lucrative if held for a decade or more.

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