By Ryan Yuhnke
When you have cash sitting in your bank account, it can provide a sense of security. But is it more than you need? If instead you put your idle cash in play, you give your money the opportunity to bring in returns and increase your overall wealth.
Yes, a big safety net of cash in your savings or checking can provide peace of mind, but did you know you’re exposing your money to risk? Your idle cash will not be able to keep up with inflation and you could risk losing long-term purchasing power and missing out on opportunities for growth.
What Is 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. There is no right number and it is different for every person and family, but we believe one should have a cash contingency target to keep in reserves based on your unique circumstance. Other than this backup cash, the amount of idle money in your portfolio should be limited, with additional funds being productively put to work.
Review Your Accounts
Do you know how much idle cash you’re carrying? You may consider the money you put into mutual funds as being invested, but did you know that these funds usually keep about 5% of the portfolio in cash and cash equivalents? (1) Evaluate your portfolio as soon as possible, because the excess cash sitting in your savings is losing the fight against inflation.
Inflation has increased costs, and the value and purchasing power of $100 today is very different from that of 30 years ago. Even with rising interest rates, idle cash is still not earning nearly enough to effectively combat inflation and holding on to excess cash for the long term is effectively minimizing the potential upside of your hard work. What can you do with the extra cash? How do you reinvest it so you maximize its return?
What Is the Alternative?
At Court Investment Services, we specialize in assisting fiduciaries or persons acting in a fiduciary capacity. It’s important that your clients understand that there are more efficient ways to handle cash than simply stockpiling it in a checking or savings account.
Yes, there should be enough on hand to take advantage of buying opportunities, but beyond that, cash should be working for you and not collecting dust in a savings account or locked up in long-term maturities like CDs.
At CIS, we offer a cash management strategy where we actively roll cash into U.S. Treasury Bills with one-day liquidity and pay upwards of 3% interest (as of October 2022). This can be a great way to maintain liquidity without sacrificing return.
How We Can Help
Sitting in cash or selling out is not a strategy. Now is the time to be ready to purchase quality stocks at a discount, but how do you know it’s a discount without understanding the data? 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.
Do you think idle cash might be affecting your return potential? Schedule an appointment by contacting us at (800) 880-2760 or Kitty at kchu@CourtInvestmentServices.com.
About Ryan
Ryan Yuhnke is founder and Principal at Court Investment Services, an independent, fee-based investment firm that serves attorneys and fiduciaries as they manage estate-held assets. With two decades of experience, Ryan’s proactive, relationship-based process saves his clients time and money while putting them first in everything. He provides services and support to help attorneys and professional partners oversee and manage special-needs trusts, estates, conservatorships, guardianships, and other court accounts, including IRAs, 401(k)s, and all manner of retirement accounts that also fall under his clients’ management. Ryan is known for his commitment to excellence and transparency and his deep knowledge of probate laws, court compliance, and strategies to keep assets safe while abiding by all court and probate code directives. Ryan’s goal is to make his clients’ lives easier, providing investment support and education along the way.
Ryan has a bachelor’s degree in economics from the University of California, Irvine, and built his career working in banks, national investment firms, and registered investment advisory firms (RIAs.) Prior to starting CIS, he earned the title of First Vice President, and Portfolio Management Director while employed at Morgan Stanley in Newport Beach, CA. When he’s not working, Ryan can be found traveling to experience new cultures and environments, focusing on personal development through mental, social, spiritual, emotional, and physical growth, and most importantly enjoying quality time and creating new memories with family and friends. To learn more about Ryan, connect with him on LinkedIn.
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(1) https://www.investopedia.com/terms/m/mutual_fund_cash_level.asp
