Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

You are viewing Rule of Thumb

Your Pot Of Cash Has A Hole In It.

You, like many Americans, may have a sizeable pot of cash just sitting in a bank account earning next to nothing.

The goal in keeping cash in a bank account is safety.

But what if I were to tell you that you that there was a hole in your pot and you are losing 2-3% each year and not even realizing it? You might think twice about keeping high levels of cash in the account.

In a sense, that’s what is happening. Every year, the cost of goods and services increases by 2-3% but the cash stays the same. This cash in your pot has ability to buy a little bit less than it did the year before and the year before that. This is the conception of inflation.

$50,000 today will buy more than $50,000 5-10 years from now.

One option to get around this harsh reality is to invest excess cash in a balanced diversified portfolio.

Why Waiting For The Right Time To Invest May Cost You In The End

At least once a week, a client will give me a reason why they don’t want to invest in the US stock market. They mention the headlines (which are designed to scare investors), and talk about the crisis-du-jour, or reference the looming economic dark clouds growing in the distance.

And so they sit in cash, with its perceived safety, waiting for the dust to settle, the clouds to clear, and the right time to invest.

But will it ever come… will it ever be so clear to the investor as to when they should invest?
Perhaps not.

A Wake Up Call: How Not to Deal With an Inheritance.

The following story offers a great example of what can go wrong when a young, financially inexperienced individual becomes wealthy overnight. This author’s advice at the end is exactly what we recommend to clients in this situation:

  1. Get advice from someone on how to use this new found wealth.
  2. Create a plan. Put it in writing. Understand what these funds will be used for it.
  3. Stick to the plan. Without controlling your budget, you can slowly lose track of the wealth.
  4. Don’t be tempted to rely too much on this wealth. It’s very, very easy and tempting to dip into the inheritance when things get tough. But it’s nearly impossible to rebuild a nest egg has been decimated.

How I Blew a $250,000 Inheritance

You Can’t Predict the Next Black Swan Event

What’s wrong with this chart?

Give up? The folks that created the chart are trying to predict the next Black Swan – the next significant event that could derail the economy. The problem is, that by definition, black swan events are unpredictable and exceptionally rare. Much of what’s listed here has been dissected and extensively analyzed. They are serious concerns but may already be baked into the current price of the markets. Just look at how the S&P 500 has responded due to the tensions in Russia and Ukraine

Sometimes the biggest risks are the ones that do not appear on anyone’s Black Swan chart!