Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much.
Brandy Auterson-Hurst:
So last week we talked about money market funds and why cash has been so popular lately. Is there anything else we need to know about this story?
David Nelson:
Yeah, it’s a really important point and that is, which we’ll have a little chart here that’ll illustrate this, but cash is great as far as giving you some stability, but what we want to look at today in the chart, if we could pull it up, it’s going to illustrate as far as the impact that inflation can have as far as on and over a period of time. And what we’re looking at, the top line shows that the real cash yields based on a three month Treasury bill minus inflation. And so that’s a really important point.
But what you can see right now is that it’s basically yielding a little over 1% net. And again, in comparison to historical levels, that’s pretty darn good. So if you look to the right, the yields are certainly positive, but what we find on the bottom is that when you factor in inflation, the actual positive returns pretty much disappear. And what this chart is trying to illustrate, and it’s maybe a tough concept to get, but if you start on the left, basically going back to 1990 and you look today and you kept your money in these investments, these so called safe investments, what you find is that you’re below water because purchasing power is disappearing. We factor in taxes, we factor in inflation and a money market type instrument basically that feels good, feels good today, but it won’t feel good down the road if and when a person holds it for an extended period of time.
Brandy Auterson-Hurst:
Okay. So tying this back to last week, how should investors think about cash today?
David Nelson:
Just very short term. Do not park the money there for an extended period of time.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.