Lazy Money

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Today’s Question:

Let’s talk about times when our money is lazy and how we can better put it to work. We’ll explain our definition of lazy money, why people have it (and maybe have too much of it), and how we can make better use of it.

In The News:

[1:57]Is the Bitcoin craze over? A lot of people bought in when it was new, and some early investors got in at $900 in 2017. It peaked close to $20,000, and now it costs about $3,800 for a Bitcoin. With your investments, you must consider the risk and reward. We didn’t put any clients in Bitcoin because it had no track record. So you can play with trends like that a little bit, but make sure it’s an amount you can afford to lose.

The Confidence Corner:

[6:54]Your lazy money consists of your “safe” investments. Money in checking accounts, CDs, and emergency funds are all considered to be “safe money.” There’s been a big shift over the past six months toward putting more money into funds like these. Sure, these accounts might be paying two percent, but you need to consider the rate of inflation. There’s an amount of money you need to have for emergency funds and operating funds, but don’t put too much into these accounts. It’s called lazy money because the money’s not working for you. Instead, you should be making interest that is outpacing inflation.

[9:24]What are reasons that people have that lazy money? A lot of people got burnt by the last market dip in December, but if you stayed invested you are back. In 2008-2009, people jumped out, and many have not yet gotten back into the market. There’s a lot of reasons why people keep money in “safe” accounts, but you never see somebody that becomes a millionaire by investing in CDs.

[11:14]How do you better utilize too much lazy money? Ultimately, it comes down to risk. It’s important to understand standard deviation with your financial advisor. This is an actual scientific measurement of volatility. An advisor needs to show you that compared to the volatility of a CD or bond.

[12:10]Your timeline plays a part in how you invest. Everyone is different, and that’s why it helps to use an advisor to figure out your timeline. Knowing when you need this lazy money to do something will determine where you should put it.

The Mailbag:

[15:26]Kathy asked whether it’s a good idea to take out a 401(k) loan to pay off a debt. No, in most situations this isn’t a good idea. People think they aren’t “borrowing” that money, but really, they’re taking away money from their future. Over time, it really hurts. If just $40,000 was left invested, it would amount to more than $80,000 over ten years. If you absolutely need it, then you can do it, but try to find another option if possible.

A Point Of Wisdom:

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Your Guide:

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