Cash accounts are one of the ways that advisors can help ensure financial wellness for clients. Often, cash accounts are for reinvesting opportunities and criticized by analysts for reducing performance in a portfolio when the account sits idle. However, the cash account doesn’t have to “sit idle” 100% of the time. Some part of it or even all of it can be rotated in and out of the market with set gain expectations. So instead of getting 1% or less an advisor can put some of the capital to work on a short term and finite time period and it is then pulled back to cash

In an environment where interest rates are low or effectively at 0%, advisors want to move cash to securities for performance. It used to be that cash accounts rewarded the investor- at least a little. There are reasons that cash accounts should always be present in an investor’s portfolio:

  • Liquidity and opportunity
  • Reduce portfolio volatility
  • Preparing for a slowing Bull market

“Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”- Warren Buffett.

Although it is tempting to invest cash that appears to be idle into the market to produce a better return, there is a fourth reason to make cash a permanent asset class:

  • Financial wellness

As we saw in 2020, many Americans were economically impacted by COVID-19, and may be in 2021. Liquidity for an unexpected life event through a cash distribution is one of the easiest ways to keep a portfolio intact and an investor safe. When an unexpected event requires liquidating shares, the entire portfolio declines if it occurs during a down market. 

Cash accounts help protect the portfolio against premature liquidation. Although some advisors may argue that a portfolio shouldn’t be an emergency fund, there is no better place to keep six months or more living expenses. Setting cash reserve minimums for each client’s portfolio, specifically for financial emergencies, is easily accomplished with our AdvisorPeak software.

Cash accounts are tied to an investor’s psyche and can help them stick to their investment strategy through all types of events they may experience. 

A cash account can also help investors live out their dreams or provide for others. We’ve all seen the commercial where the retired couple meets with their advisor to discuss their portfolio. Later they call their advisor to tell them they’re buying a condo near their daughter to be near their new grandchild. This life-changing opportunity is what cash accounts can be to your clients- their ability to have financial wellness. And sometimes, financial wellness takes shape in the form of a Porsche.

In the U.S., there is a growing trend for employers to deliver financial wellness programs to their employees. Financial wellness goes beyond 401(k) plans and encompasses holistic personal financial and wealth management:

“The solution to these challenges is for employers to take a comprehensive approach and build their financial wellness program on four key pillars: learn, plan, invest, and manage.

These four pillars are essential to employee success, but they are not enough. Total Financial Wellness success is assisted by providing employees access to digital tools and a team of experienced financial advisors to support these four pillars.”- A New Vision for Financial Wellness. Forbes, August 19, 2020.At AdvisorPeak we feel this is an opportunity for advisors to deliver the same vision to their clients. Let us show you how easy it is to manage account cash requirements, distributions, withdrawals, dollar-cost averaging schedules, and more to ensure your clients’ financial wellness.  Take advantage of Operation Rebalance going on now!