As a personal finance blogger, it’s only fair to look at both sides of the coin and unpack the good and ugly of managing finances to hopefully make your lives easier in the long run!
One major downside to living in the 21st century technology-driven fast-paced ‘get rich quick scheme’ retail trading booming age is that the abundance of highly technological systems makes it much more difficult to prevent and crack down on bad actors, investment schemes, and skeptical sales to occur. As consumers and investors, they are becoming harder to spot by the day. Keeping your guard up especially as holiday deals are around the corner is suggested.
With skyrocketing rates of cybersecurity threats online to consumers getting hacked out of their own accounts, there needs to be more financial awareness, precautions in place, and simply more knowledge around how to stay safe online to slow down and think twice before something looks too good to be true. We’ve all come across it.
A guaranteed fact is that we all want to live financially free, successful, flexible lives in the future, and in order to do so, we must enhance our financial literacy acumen and triple check before clicking on a link or enticing offer for free coin!
Nowadays, more than ever it’s common to hear of hip financial gadgets, tips, tricks of the trade, and sadly too many silly and hard-to-spot gimmicks online around how to pinpoint hidden winners in the markets, proven ‘unbeatable’ strategies, or the most hilarious of them all, guarantees of any sort.
Unfortunately, if anything sounds too good to be true it usually is. Nothing is truly guaranteed in the markets except for safe haven risk-free guarantee returns issued by a stable, insured, and credit-backed government such as the U.S. Gov’t with Treasury Direct site’s offerings, secure munis issued by state and local governments, reliable family and friends who need to borrow money from you or any other trustworthy borrower.
Other than those few sources, you must expect uncertainty, volatility, and risk in order to yield potentially more return later on. Gamble whatever you want to lose.
Ironically these days taking less risk can result in greater returns than through public equities with minimal effort through fixed-income, savings accounts, treasuries, munis, corporate bonds, etc. since investment yields are so attractive as risk assets are plummeting in value due to the heightened uncertainty around inflation, a looming recession, and dreaded higher borrowing costs.
But this won’t last forever folks! Nibble at those discounts to lock in those rates for the long run. Finding long-term winners that compound annually by 10% won’t always be available through Treasury bills currently yielding around 3.50%.
When you can, take advantage of risk-less assets to preserve cash and during the more prosperous times, check in with your risk tolerance to make sure you aren’t overly audacious and gaining more exposure instead to companies you believe will succeed in the future. Make sure to still keep a moderate realistic outlook since that’s the only sure-fire way to truly gain financial freedom and success by sticking to it for the long term.
Dipping in and outside of the markets or religiously following Reddit’s Wall Street Bet feeds isn’t a proven nor guaranteed strategy by any stretch. In fact, if you want to lose money and fool around, those may be the two options to go for due to wasted time and immense tax burdens incurred with short-term selling.
As I’m writing this on October 10th, October’s inflationary report was released at 7.7%, below September’s 8.2%. What a relief! If it was above 7.5%, markets would signal increasing uncertainty with higher expected hikes into December.
The good news here is still bad news when the Fed engages in its hawkish tightening plan to steer the economy back to normal pre-pandemic times. Fortunately, a lower inflationary report is another sign it may have peaked which means treasury yields may come down within the next few days already, risk assets will start to rally again, borrowing costs will decline, the housing market may pick up again, and the worst times may have passed! Even Bitcoin is off the rails today after the release!
Another major indicator that the storm has passed and we don’t have to sit on the edge of our seats any longer holding on for dear life to wonder if the Fed’s engineering for a soft landing away from a possible recession will go as planned is by paying attention to the I Savings bond yield which dropped down to 6% from a staggering 9.2% only a day after!
When yields drop that significantly, this means a few things. The U.S. government is willing to pay less interest on its loans aka borrow more cheaply, investors are tapping out of safe haven short-term treasuries and betting on long-term players with a widening of the yield curve inversion, and spending (less dollars chasing too few goods) has curtailed since inflation is finally easing after months of anticipation!
With all this being said, although cash-stuffing may not be as timely as it was prior to the inflationary report’s reading this morning, getting ahead of ourselves as investors is never a prudent strategy either so let’s make sure to always have our cash cushion on the sidelines just in case!
Cash-Stuffing Plan
Just like it’s suggested to have around 6–12 months of living expenses in cash that is designed to be un-touched and not invested in case the economy goes belly up or the world flips on its head, keeping minimal cash in your physical wallet, if you still carry one and around the minimum balance in your checking account is a smart move.
For myself, this has been one of the most beneficial life savers to not overspend since studies have shown when using a credit card, it’s much easier to overspend by almost double and I’m not surprised!
Whether you’re looking to become a more disciplined spender or saver, realize this; it’s much easier to save than invest ‘smarter/better/strategically’. Having a diversified portfolio at all times at any age will help your portfolio withstand any market turmoil or sector swings but active managers even struggle with outperforming the broader market during bearish times. Most active managers (over 70%) don’t beat their respective benchmarks anyways and only end up trailing the markets by roughly 100 bps so sticking to a more realistic goal of cutting back on spending to save more than pick ‘winners’ in the market will ease the expectations and financial burden.
Cash-stuffing has become a popular TikTok trend that has caught on since cash has become king in 2022! It won’t last forever!
This trend of ‘stuffing’ one’s cash is unlike the millions of others on TikTok that are either dangerous, a true fad, or just simply don’t work. In personal finance, simpler is usually the better and this holds true here!
No more settling with a dismal .02% return in your low-yield bank savings account or having to deal with inflation eating up your cash when you can invest it in short-term treasuries, CDs, munis instead and in fact earn a higher return compared to the broader equity markets nowadays.
Cash-stuffing is in the name.
You start with allocating as much as you need in your checking account and wallet. Whether it be each week or preferably every month, and realize this is the limit you’ve set for yourself and cannot go over. Nothing new or special here but when you see it digitally or even better physically in the wallet, it’s a really powerful tool. You cannot spend more because you don’t have it. Out of sight, out of mind!
Whether you are competitive or not with yourself, see how ‘low’ you can go without of course wrecking your entire lifestyle to simply spend less. The whole point of this is to not only have your cash deployed in as many risk-free guaranteed investments as much as possible to take advantage of decades-high yields that aren’t around forever but cut back on spending in a fun way while inflation is still hot at 7%. 7 may be less than 8, but in the grand scheme of things, the Fed’s inflation’s target range is 2% not 6 or 5. We’ve still got a long way to go before borrowing costs hit consumers’ wallets.
The good thing about finally witnsessing inflation decline after the Fed’s 4x+ hikes this year with the FFR rate near 4% is that it’s a reminder that inflation won’t last forever! Of course that’s a good thing for our purchasing power but looking at the bright side of inflation such as higher investment yields with less effort on risk-free rate assets, is a nice feeling. Choosing winners in the broader public markets is exhausting since it’s rare!
We’re already witnessing inflation steadily decline so in the meantime, budget accordingly, set aside the right amount of cash to earn it back once it stops eroding as badly in 2023, and adopt these habits of stuffing your cash or stuffers themselves before the holidays roll around to get in better shape for the new year!