How Much Cash Should Be In Your Financial Plan? What role should cash play in your financial plan? In this insightful conversation, David Shotwell, a financial planner with Shotwell Rutter Baer in Michigan, joins FinStream TV Co-Founder Bob Powell to explore cash in financial planning and how it fits into a sound financial strategy.
Many people focus on the fact that interest rates on money markets and CDs have risen significantly. Since 2022, it’s been common to see rates of 5% or better on these types of cash vehicles. But rather than just chasing returns, Shotwell encourages investors to ask a more strategic question: What is this money for?
Cash should be held with purpose. Shotwell breaks down two key roles:
Contingency fund: Cash provides stability in uncertain times. An emergency fund can cover unexpected medical bills, job loss, or large home repairs.
Short-term spending needs: Cash is ideal for money you plan to use within the next 24 to 36 months, depending on your risk tolerance.
While short-term yields may be attractive, cash is unlikely to outperform inflation over the long haul. That’s why it’s best reserved for short-term goals, not long-term wealth building.
Key takeaway: Don’t treat cash like an investment—treat it like a tool. Allocate it thoughtfully to meet specific needs and reduce the risk of having to sell long-term investments during market downturns.
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