One concept to keep in mind is that ALL investments involve risk. I have a very dear client who told me that she wanted to keep the money in the bank “where it is safe.” However, I had to bring her attention to several hard, cruel facts. Currently, the best rate I could find her locally was a 5 year CD earning .78%. “At least I’m getting something.” She commented. But is she really? Let’s examine the hard, cruel facts.
First of all, every penny of her money is TAXABLE. Her combined tax bracket is 20% (federal and state). So now her “safe yield” had dwindled to .62%. Still, she lamented, it’s better than nothing or losing my money. I told her but you are losing money. She did not understand. So we pressed further. I said, “When was the last time you went grocery shopping?” “I go every Sunday morning early when everything is fresh.” She replied. Next I asked, “Have you seen the prices of your basic food groups today?” Her eyes opened wide and said, “Oh My God, it’s terrible. I can hardly keep up with the rising prices.” I then commented that the official Consumer Price Index is 2.1%!
[I actually believe when you factor in utility costs, food, gas, it is very much higher]. So I now told her that her .62% was under water. Simply because the rise in consumer prices is 2.1% and her earnings are .62%. The end result is a net yield of – 1.48%.
Should my client keep money “safe and guaranteed?” Absolutely, positively, YES! However, it should not be to the extent of having all her money safe and guaranteed. I and my team of financial advisors recommend examining what your monthly expenses run and then set aside two to six months of these expenses for immediate cash on hand expenses. Your other monies, IRAs, 401k plans, savings accounts, should be used wisely and prudently in a broad range of investments.
We will begin covering the investments as well as the different plans, such as 401k plans and others. We will also be adding more insurance strategies to round out your total Business Succession Plan.