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  • Writer's pictureJeran Van Alfen, CFP®

Mindful of Your Money

I am reading a book right now called Advice Not Given: A Guide to Getting Over Yourself. By Mark Epstein. From the book, I thought I would share a quote that has been on my mind: “Developing Mindfulness is like learning to ride a bicycle or walk a tightrope, only much more frustrating. One keeps falling, even after years and years of effort. Right Mindfulness means having a light touch. It means being able to forgive yourself, time after time, while at the same time not giving in to your worst impulses.”

How does this apply to money? Here are my thoughts…

I am often asked about current events and how the markets are reacting or may react. Headlines may cause us to jump to conclusions and then leave us perplexed when we see the markets move in a different way than we would expect. We saw a good example of this last quarter. While we were bombarded with news of bank failures, the Nasdaq posted its best quarter since 2020.

To avoid a rollercoaster of emotions, it helps to apply mindfulness to our finances by having a “light touch” and “not giving in to impulses.” I think this translates to smart financial choices by focusing on what is in our control and making small adjustments as needed.

Over the last year, the investment environment has changed quite a bit. With higher interest rates, we expect that stocks may give us a bit lower average returns than we have gotten used to over the last few years. Likewise, the higher rates mean higher yields and expected returns for bonds and cash.

This change warrants a review of how your investments line up with your goals.

To help explain this, I have been revisiting this chart with investors a lot lately:

The lesson is this:

For short-term needs or purchases, cash savings is essential. You may have noticed rates on money markets or CDs above 5% recently. This is fantastic and is a great incentive for money that you are going to use in the next 24 months. Cash interest rates should keep up with the expected short-term changes in prices.

However, for longer term goals it makes sense to invest. As you will see on this chart, over the last 30 years, if $10k was saved in cash (represented by T-Bills), it lost money to inflation. It is a good idea to review your cash on hand and make sure of the following:

  1. Is enough of your portfolio allocated to cash to provide a liquid reserve equivalent to 3 -6 months of expenses?

  2. Do you have cash in your portfolio for large expenses that will occur in the next 12-18 months?

  3. Is your cash yielding an adequate return? (In the current market: 4-5%)

The blue line on the chart represents bonds. Historically, that line has been pretty smooth, with the largest fluctuation happening last year. Even with the recent volatility, bonds tripled the rate of inflation over the last 30 years. This type of asset provides stability and income for longer-term goals.

Stocks (represented by the dark green and orange lines) provided the most wealth accumulation and spread above inflation. This asset-class is the most volatile but also produced the best return for long-term goals.

As we look forward, I don’t see any reason to change expectations. Cash should provide short-term return for money that you need access to or plan on using. A diversified portfolio of stocks and bonds constructed based on your tolerance for risk and volatility should be used for long-term growth and future income needs.

There are always going to be reasons to second-guess the markets. There will always be politics and conflicts and monetary policies that leave us with questions. However, stay centered, maintain a light touch, avoid your worse impulses, do your homework and you will make the right decisions for you.

Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation.

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