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Advisers walk fine line when managing client cash
Staying ahead of inflation in a low-yield environment can mean taking on more risk with emergency cash positions. The shortest-term certificates of deposit are yielding less than 65 basis points.
May 17, 2021 2 MINS
While most financial advisers continue to recommend their clients hold enough cash or liquid cash equivalent to cover between three- and six-months’ worth of living expenses in case of an emergency, the crushing reality of historic-low yields is leading to some shifting priorities when balancing safety and yield.
“I get the question about earning yield on cash at least once a week from clients,” said Paul Schatz, president of Heritage Capital. “There are plenty of solutions, but solutions don’t come with the same low level of risk as bank savings accounts.”
Rising inflation? No problem for fans of emergency cash
Financial advisers continue to recommend hefty cash reserves yielding almost nothing and losing ground to inflation, under the premise that safety trumps yield.
April 27, 2021 3 MINS
Even with yields unable to keep pace with inflation, most financial advisers are holding firm in support of liquid, emergency cash allocations.
“The most important characteristic of holding cash is not return but safety and stability,” said Christopher Lyman, financial planner at Allied Financial Advisors.
“Cash is for if things go sideways and you need to pay for something without putting it on the credit card or selling assets that have currently taken a loss, or as a means of taking advantage of buying at a deep discount when a market correction or crash occurs and everyone else is scared,” he added. “With that being said, stability and liquidity are more important for your cash reserves than return, so I st