It's everywhere – in IRAs, retirement plans, banks and investment accounts. I'm sure there are more than a few mattresses out there hiding their share of currency. All that cash, despite today's rock-bottom interest rates.
I can see why it's happening, even if I don't think it makes a lot of sense in some cases. But people are afraid. They're afraid of bonds because rising interest rates could send them into the tank. They're afraid of stocks because the run-up in recent years makes them seemingly ripe for a turn south. Add the turmoil in Washington, and it's not hard to see why people are hesitant to take any action.
Our market experts here at USAA anticipate that rates will eventually rise, but only gradually over the next two to three years. So what do you do with that cash?
One thing you don't want to do is put yourself in a bad position in the quest for higher rates or returns. Funding short-term savings goals with long-term investments can be a recipe for disaster. Would you put next month's mortgage payment in the stock market? I hope not. Along those same lines, leaving money earmarked for long-term goals in cash will likely lead to a situation where your portfolio is outpaced by inflation. It may feel safe, but you'll lose purchasing power over time.
In the end, there are no easy answers. But if you're sitting on a pile of cash, one thing that does make sense is to revisit your overall saving and investing plan. It may also be a great time to enlist the help of a financial adviser who can help you step back and take an unemotional look at where you're at and what's been going on. That's why we're here.