Don’t overlook importance of cash

Long version

If you’re an investor, you no doubt pay a great deal of attention to your stocks, bonds and mutual funds. But you shouldn’t forget another key element of your financial strategy: cash.

Cash is part of any financial strategy and investment portfolio, but how much have you thought about the different uses of cash, and how much you really need? Consider these four key purposes:

Unexpected expenses and emergencies – If you face an interruption in employment, you need an extensive home repair or you encounter an unplanned medical expense, you may need access to cash. If you’re not retired, it’s a good idea to have three to six months of living expenses in cash, possibly supplemented by access to a line of credit. If you’re already retired, keeping three to six months of living expenses in cash, possibly supplemented by a credit line, is a good rule of thumb.
Specific short-term savings goals – You may have some goals you want to meet within the next year or two, such as a wedding, a vacation or the purchase of a new car. And since you have a little more time to meet these needs than you would for an emergency, you might consider using a money market account or a short-term certificate of deposit (CD), in addition to your other savings vehicles.
Everyday spending – You’ll always need cash to provide for your day-to-day spending needs, such as your mortgage, other debts, groceries, utilities, entertainment and so on. If you haven’t already done so, you might want to create a budget, which could help highlight areas in which you can reduce spending to free up funds for investing in long-term goals. If you’re still working, keeping one to two months’ worth of living expenses in a liquid account may be sufficient, but if you’re retired, you may need up to 12 months of living expenses, which you can adjust to accommodate outside sources, such as Social Security or a pension.
Source of investment – You can look at cash as an investment source in two different ways. First, cash can be considered its own distinct asset class, and because it typically behaves differently from other asset classes, it can provide some diversification to a portfolio containing stocks and bonds. (Keep in mind, though, that diversification can’t guarantee profits or protect against all losses.)And second, the cash in your portfolio could be used as part of a systematic investing strategy in which you put set amounts of money at regular intervals into investment vehicles that are appropriate for your goals and risk tolerance.

Clearly, cash is an important part of planning for the future, but there can be too much of a good thing. While cash may seem like a perpetual safe harbor from the stormy investment seas, it is not without risk. If you hold too much cash, you could underfund your longer-term investments — the ones with the growth potential you need to reach some of your most important goals, such as a comfortable retirement.

Put your cash to work. By using it wisely, you can add a valuable element to your financial picture.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones, Member SIPC

Number of words: 522

Short /radio version

Word

PSA: Don’t overlook importance of cash

TBA: Oct. 24, 2022

If you’re an investor, you no doubt pay a lot of attention to your stocks, bonds and mutual funds. But you shouldn’t forget another key element of your financial strategy: cash.

Cash can help you in several ways. First of all, it’s a good idea to have a few months’ worth of living expenses in cash to pay for unexpected expenses, such as a major home repair.

Also, cash can help you meet short-term savings goals, such as a wedding or a long vacation.

And of course, you’ll need a reasonable amount of cash to meet your everyday spending needs — your mortgage, groceries, and so on.

Finally, you can use some of the cash in your portfolio as part of a systematic strategy in which you place set amounts of money at regular intervals into investments that are appropriate for your goals.

Still, you don’t want to keep so much cash that you underfund your longer-term investments — the ones with the growth potential needed to help you reach your retirement goals.

Put your cash to work for you. By using it wisely, you can add a valuable element to your financial picture.

This content was provided by Edward Jones for use by (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone #).

Member SIPC

Number of words: 193 (excluding FA’s name, address/phone number)