Monday, January 17, 2022




Darcie Guerin

“There are two times in a man’s life when he should not speculate: when he can’t afford it, and when he can.” ~ Mark Twain

Question: With interest rates so slow and the stock market basically flat for the past year, how much money do you suggest I keep available in cash? Also, do you think interest rates will rise?

Answer: The classic textbook answer to your question is to have a minimum of three to six months’ worth of living expenses readily available. If you’re still working then you may face additional risks, such as disability or layoffs. These events may leave you financially vulnerable and more moola could be a comfort. Either way, having ready access to liquid funds for emergencies and opportunities is essential.

After the Crash of 2008 many individuals increased their amount of cash on hand to cover twelve to eighteen months of expenses. There is no right or wrong answer to your question. Your goals, lifestyle and fixed expenses influence what you’ll need. For instance, questions such as “will you need a new car in the foreseeable future?” or “are there any home renovations on the horizon?” and “do you have unique health care needs?” will guide your plan. If your answers are “yes” you may want to keep more than the “typical” emergency fund amount available. This is why it’s crucial to map out your spending and investing program, monitor and revisit it periodically while making necessary adjustments.

Markets and Cash

For the past year equity markets have posted basically flat performance with only small gains, while international markets are generally down. Investors are in a holding pattern until they absorb and process important date and evaluate trends on manufacturing, employment and retail sales released during the first week of December.

Meanwhile, we’re eagerly awaiting the results of the December 15-16 Federal Open Market Committee (FOMC) meeting of the Federal Reserve. Expectations are for a small interest rate rise of 0.25% with an emphasis on a gradual pace for future rate increases. The last time interest rates rose was June 2006, when the world was a much different place.

Rates came screeching downward after the market fall during October 2008, to promote economic activity and provide liquidity to a fragile economic system. We’d seen the unthinkable happen; our economy lost 765,000 jobs in just one month and long-standing firms such as Lehman Brothers and Bear Stearns closed their doors. Today’s economy is stronger and can likely withstand a small hike in interest rates.

“If history is our guide, that show of confidence in the outlook of the economy could remove much of the uncertainty in the market and help convince investors that we are heading in the right direction,” wrote Andrew Adams, CMT, of the Raymond James Investment Strategy team in his November 20 commentary. “In fact, while we usually see choppy markets right after a Fed rate increase, that period of volatility is generally followed by pretty good returns.” In addition, the markets also seem to like lower oil prices, according to Chief Investment Strategist Jeff Saut, though he believes that crude oil is still in the process of bottoming.

Most of us grew up as savers and cash represented security. Childhood memories recall interaction with the “bank-lady” who handled our passbook savings deposit transactions in first grade. The thrill of having her return the passbook with interest posted and along with a higher balance was the foundation for frugality. Valuable habits of forgoing short-term desires in exchange for long-term goals began in elementary school.

Today’s slow and low economic growth rate along with a historically low interest rate environment, present obstacles for savers. In addition, the average life span has increased due to health awareness and medical advancements. Low savings rates and longer lives make it challenging to position funds for growth and income.

Bottom Line

The attractiveness of cash still depends on attitudes rather than actual returns. Growth and income derived from other investments such as stocks and bonds may be used to replenish your cash reserve. This is why diversification and the quality of investments influence overall success. Cash is a ready source for spending and can act as a stabilizer or shock absorber in an investment portfolio plan. Meanwhile, the risk of cash is the potential loss of purchasing power as prices rise.

It Depends

Cash reserve amounts are as personal as fingerprints. There is no right or wrong answer. Whatever makes you comfortable and provides enough growth so you don’t risk outliving your money is the best place to start. Don’t hesitate to ask your financial advisor for help running the numbers and calculating your optimal level of cash. And as for interest rates, the answer is also “it depends!” The Fed has surprised us before. Stay focused and plan accordingly.

There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal. The process of rebalancing may carry tax consequences. Investments in the energy sector are not suitable for all investors. Further information regarding these investments is available from your financial advisor.


There is no assurance that any investment strategy will be successful. All investments are subject to risk. Diversification does not ensure against a loss. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email, Website:

Leave a Reply

Your email address will not be published. Required fields are marked *