{"id":10790,"date":"2022-04-05T14:43:58","date_gmt":"2022-04-05T19:43:58","guid":{"rendered":"https:\/\/www.cainwatters.com\/digitalblogs\/?p=10790"},"modified":"2022-04-05T17:06:43","modified_gmt":"2022-04-05T22:06:43","slug":"where-to-invest-cash-during-inflation","status":"publish","type":"post","link":"https:\/\/www.cainwatters.com\/digitalblogs\/where-to-invest-cash-during-inflation\/","title":{"rendered":"Where to Keep Your Cash During Periods of Inflation or High Interest Rates"},"content":{"rendered":"\t\t
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Unless you\u2019ve been living in a mountain hut in the Andes since the start of the pandemic, you know that inflation is sky-high. You\u2019ve seen it in your supply prices. You\u2019ve felt it at the pump. You may have even audibly gasped a few times at the grocery store checkout.<\/p>

As of February 2022, the Consumer Price Index (CPI) is up 7.9% from the same time last year. That means Americans are making roughly 7.9% less money, give or take, than a year ago.<\/p>

Couple that with a jittery stock market that is spooked by every interest rate hike and earnings report, plus war in Ukraine causing even more uncertainty, and it can feel really difficult to find a safe place to park your cash savings that will return anything more than pocket change.<\/p>

Do you risk your hard-saved cash in this roller coaster market? Do you lock it up in bonds or Certificate of Deposit\u2019s (CD) now that rates should be climbing? Do you keep it safely tucked away in a money market piggy bank that\u2019s earning next to zero interest?<\/p>

According to Hunter Satterfield<\/span><\/a>, Chief Investment Officer at CWA, investing your cash in times like these is less about where you put your money. It\u2019s more about where you put your priorities<\/em>.<\/p>

\u201cBefore we talk about where to invest, let\u2019s look at how much you have and what you need the cash for,\u201d says Hunter. \u201cI suggest creating a 1-3-5 plan, where you split your cash into short-term, near term and long-term buckets.\u201d<\/p>

Short-term cash is your emergency fund. It consists of roughly six months to a year of cash on hand in the event something goes wrong, like if you lose a source of income or get too sick to work for a period of time.<\/p>

Near-term cash is money you know you\u2019re going to spend in the next 2-3 years. You might be planning to remodel a kitchen or buy a car for a teenager in the next few years.<\/p>

Long-term cash is money you won\u2019t need for at least five years, and for most of us, even longer. This is the cash that you earmark for long-term growth, possibly as a bridge to retire early before your retirement accounts kick in.<\/p>

Hunter says breaking your cash down into a 1-3-5 scenario helps investors prioritize the risk versus the reward of earning larger returns across the total of their funds.<\/p>

SHORT-TERM CASH<\/h5>

\u201cFor the vast majority of us, a good chunk of the cash we\u2019re talking about here is our emergency fund,\u201d says Hunter. \u201cThis is the cash you keep in a safe, no-risk account that\u2019s probably earning you a few cents a month, if that.\u201d<\/p>

During times of high inflation, investors are often tempted to move that short-term money into a vehicle that actually earns some real interest, but Hunter cautions his clients to resist that urge.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\u201cIn an inflationary cycle like we\u2019re in now, yes, your short-term money is going to be worth less today than it was yesterday,\u201d says Hunter. \u201cBut in this situation, you need to make an opportunity-cost decision, where you recognize that your short-term cash is going to be less valuable for a period of time and be ok with that.\u201d<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Hunter calls this investing with purpose. \u201cThe purpose of your emergency fund is to be there when you need it. Period, end of story. If it\u2019s locked up in a 2-year CD earning 1%, and you get sick and have to take significant time away from your practice, the opportunity to earn 1% is going to cost more than it\u2019s worth.\u201d<\/p>

LONG-TERM CASH<\/h5>

For long-term cash, Hunter assigns a 5-year time period to the plan, but really everyone\u2019s \u201clong-term\u201d is going to be different. It could be five if you\u2019re closer to retirement. Or it could be 10, 20 or more, based on age and when you plan to retire.<\/p>

Regardless of the timeframe, the principle remains the same. Where you invest your cash in times of inflation is not really any different than where you would invest it in any other economic climate. You look at your long-term retirement goals, then layer your cash accordingly to fit your overall investment strategy, including your 401(k)s, IRAs and other retirement savings vehicles.<\/p>

\u201cFor the long-term money, I\u2019m telling my clients not to get caught up in things like inflation, interest rates or Russia,\u201d says Hunter. \u201cWe have a strong economy. The market is going to be fine over the next 10-20 years, so mix your long-term cash into your larger investment strategy and let it do its thing.\u201d<\/p>

NEAR-TERM CASH<\/h5>

So now that our short-term cash is stashed safely away and our long-term cash is layered into our larger investment strategy, the only real decision investors need to make is where to put their near-term cash.<\/p>

\u201cNear-term cash is really where the rubber meets the road,\u201d says Hunter. \u201cThis is the only money you have that is going to be impacted by this volatility we are seeing.\u201d<\/p>

Remember, this is money that you know you\u2019re going to spend in a few years on something that is most likely really important to you. Maybe it\u2019s for your kids\u2019 first car, a bucket list trip or your daughter\u2019s wedding. Either way, it\u2019s personal to you, and Hunter says the key is to keep it that way.<\/p>

\u201cName it, give it a purpose. Make it meaningful money, because that\u2019s exactly what it is,\u201d says Hunter. \u201cThis not only helps you keep the money allocated to its purpose, but it also helps guide your thought process when looking for a place to invest it.\u201d<\/p>

Because this is such a personal decision, and everyone has different access to investment vehicles, Hunter says it\u2019s virtually impossible to recommend one place to invest it over another without sitting down and talking through the variables.<\/p>

\u201cI can put on paper what you should do with your short- and long-term money, but I can\u2019t generalize what to do with your near-term money, that needs to be a custom plan for you,\u201d added Hunter.<\/p>

That\u2019s why talking to a CPA or trusted wealth advisor<\/span><\/a> is so important in helping investors find the right vehicle that\u2019s going to serve their unique needs.<\/p>

\u201cFor CWA clients, we have access to investments where over a two-year period you can get a decent return on your money that\u2019s greater than just sitting in cash,\u201d says Hunter. \u201cJust make sure in addition to that higher interest rate you\u2019re getting, you also have enough liquidity to access that cash when you need it.\u201d<\/p>

When you do sit down and speak to an advisor, Hunter suggests discussing:<\/p>