Skip to site content
The Show

An Inconvenient Truth (About Cash)

If I told you about a popular investment product that was yielding 40% less than it did last year, you’d probably think it was one of the great financial meltdowns of 2008. But, what if I also told you that investors seemed indifferent to this product’s decreased yield and were actually accelerating their rate of investment? Quite a paradox, no?

As you’ve probably realized, I’m talking about Money Market and Cash investments. Using data from Fidelity, I went back and pulled client statements to see what their blue chip Cash Reserves fund was paying as of March 31, 2007 and March 31, 2008. Over this 12 month period, the fund’s yield dropped from 5% to just over 3% – an astonishing 40% decrease. And yet, the Investment Company Institute (ICI) reports that over that same period Money Market fund assets increased from $2.4 to $3.1 trillion.

The Impact of Inflation on Cash

To make matters worse, inflation is eating away at the long-term value of these cash holdings. With the latest reading of the Consumer Price Index (CPI) at 4%, health care, food, and energy costs are much higher than a year ago. While cash does provide stability and is important for reserve funds, cash now has a negative real return. You can see fairly quickly that if you earn 3% on cash, pay taxes on the interest income, and then subtract an inflation rate of 4%, you now have a negative return of anywhere from 1 to 2% in the purchasing power of your cash.

Maximize those Reserve Fund Returns

With cash holdings generating negative returns in relation to inflation it is more important than ever that you maximize your return on those reserve funds. Having done some research, I’d suggest you at least consider these 2 FDIC-guaranteed banks (needless to say, I have no connection to either of these institutions):

No Minimum:

FNBOdirect.com = 3.25% – First National Bank Omaha

$10,000 Minimum:

WTdirect.com = 3.31% – Wilmington Trust Direct

Listen to the show to hear my thoughts on how this relates to your overall portfolio and my thoughts about investing for the future.

Enjoy the Show?

Where You Can Watch and Listen:

Subscribe on these platforms or wherever you listen to podcasts for new episodes every Friday, live streams every Tuesday at 10am CT, and new highlight clips throughout the week.

Related Content

Free Resources

5 Healthy Ways to Deal with Investment Uncertainty

Fear is a powerful emotion that can hinder your ability to take action on your finances, but it can also…

View Resource

Financial Order of Operations®: Maximize Your Army of Dollar Bills!

Here are the 9 steps you’ve been waiting for Building wealth is simple when you know what to do and…

View Resource

Wealth Multiplier By Age

How much to save every month to become a millionaire.

View Resource

Articles

How Will the Next President Affect the Stock Market?

, ,

Read More

Inflation Unexpectedly Reversed Last Month. Here’s What That Means.

Read More

Why Forecasting the Future of Inflation (and Interest Rates) Is So Difficult

, ,

Read More

Financial FAQs

Courses & Tools

How about more sense and more money?

Check for blindspots and shift into the financial fast-lane. Join a community of like minded Financial Mutants as we accelerate our wealth building process and have fun while doing it.

https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-book.png

Millionaire Mission (Brian’s Book)

Buy Now
https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-math.png

Know Your Number Course

Buy Now
https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-pencil.png

The Money Guy Net Worth Tool

Buy Now

Recent Episodes

It's like finding some change in the couch cushions.

Watch or listen every week to learn and apply financial strategies to grow your wealth and live your best life.

top 10 mind blowing money stats 2024

Top 10 Mind-Blowing Money Stats (2024)

Watch Now
10 8 WhereDoYouRank2

Are You Doing Better Than the Average American?

Watch Now
REACT YTpt2 1

Financial Advisors React to Money Advice on YouTube (Part 2)

Watch Now