May 19, 2022
Sometimes people become frozen and just can’t decide. They may be afraid of making the wrong decision or dither over what to do. We regularly meet potential clients who hold a lot of cash. They are the first to say I have too much cash then follow up saying but I didn’t know what to do with it.
Company retirement plans
We think it is unwise not to participate in a company retirement plan such as a 401(k).
Non-Retirement Savings Plan
We think it is a good idea to have different types of accounts. Retirement plans as well as non-retirement (taxable) accounts. And, assuming it is for long-term growth, have it invested, not sitting in cash.
If you need money, you may need to sell a security to free up cash. There might be a tax on the sale, but usually at a lower tax rate (capital gains).
Alternatively, money withdrawn from a retirement plan is taxed as ordinary income.
The saving hierarchy we suggest is:
Holding cash due to inaction usually is harmful down the road. While the market does move up and down, over time it has moved up. You want to have some growth to, at a minimum, stay ahead of inflation.