- So let's see if this sounds familiar.
You got some money sitting in cash, and
you want to make decent return.
But you don't want to tie up your money too long, and
you especially don't want to lose it.
Can you really make money, are there opportunities to
exist in today's low interest rate environment?
Alright, so interest rates have been low for
crazy, stupid long, interest rates suck.
There used to be a time that you could go to a bank and
get a CD paying you 5%, heck, you could get a savings
account or a money market account paying you 5%.
That does not exist now, but there are a ton of
you that are in the situation, they have money,
sitting in cash, and they want to make some
money and they don't know what their options are.
So this is a reader question I had, that this
person has money sitting in cash, they
wanna make some money, so what options do
they have, what options do you have?
We're gonna find out in today's video.
(upbeat, inspirational music)
Alright, before we get to this reader question, the
one thing that you're gonna notice is that the
background is a bit different.
So this is a video I recorded in my old home office,
I actually think it was recorded over a year ago, but the
information still applies today because interest rates are
still low, nothing has really changed, so the
options I discuss still apply today.
Yes, I did put on the same shirt just so that there was
some continuity and you aren't too confused, but you
will notice a different background, so
just be on the lookout for that.
Alright, so let's get onto the reader question.
You got low interest rates, you got some
money you want to invest, what options do you have?
Let's find out what this reader question is.
What's going on everybody,
Jeff Rose from goodfinancialcents.com,
with another edition of GFCTV, and this is one of those
editions where I'm going to answer a reader question.
So that could be you, reader, if you have a question,
you could head on over to goodfinancialcents.com/ask
and ask a question and guess what,
I might answer it just like I am now.
Could you be the lucky one, could you,
could you, you could be, but you have to
head on over to goodfinancialcents.com/ask
first, so ask away and I'll answer.
Today's question comes from Tien, Tien asks.
So first, Tien, I wanna say, you paid off all your
student loans and your car before you both were 28?
Amazing, that's so huge, I don't think you realize how much
you have put yourself in the driver's seat, literally, to
where you can have financial freedom, so kudos to you.
So the first thing we wanna talk about is
low interest rates, yes we know, interest rates are low and
they bend low, it seems like forever, but the one thing
you have to do is make sure that you
keep enough savings in liquid cash
savings so that you have an emergency fund.
Now there are many different views that you could
look about this, and it all depends on
your job and your current income.
So for example, if you have a self employed job where
your income fluctuates from month to month, then
generally you're gonna have more in that
nine to twelve months in cash savings.
If you feel pretty good about your job, and you feel that
your job is gonna be there, and you know what your
income is, it's very predictable, then
having at least six months should be okay.
But the other thing that you do want to do, or do
not want to do, is be tempted by
short term growth, and let me give an example.
Several years ago, my wife and I were building our home,
which is this home right here, we still hadn't sold our
other house, and we had about 12 months
sitting in cash, earning next to nothing.
This is back in 2008, when the market took a dump, and
I wanted to take a third of our cash savings and put it into
GE stock, but I asked myself the tough question,
Jeff you are a certified financial planner, if a client
came to you and said that they want to put a third of
their cash savings into one stock, while they're
building a house and haven't sold
their other house, what would you tell them?
And I asked myself the tough question and
I answered that question and I would have said no.
I would not let them do that, so I didn't.
Now reflecting back, I would've made a lot of money.
Would've made a lot of money, a lot of money,
but I'm okay, I'm at peace with it.
But I know that I never would've suggested that to a
client, to allow them to take that cash and
put it into a stock, so I didn't let myself do it either.
When it comes to short term investing, you cannot be
tempted by short term gains, because if you're trying to
make 10%, there's always that potential that not only could
you lose 10%, but you could lose two to three times that.
So ask yourself, to make 10% gain, are you
comfortable seeing a 20% decline?
If the answer is no, then watch out for
those short term gain temptations.
Now the other thing that you asked me about is
peer-to-peer lending, and I will tell you, I'm a big fan of
peer-to-peer lending, I've been doing peer-to-peer
lending for I think four or five years now, and
I've made some pretty good return.
But the one thing that you have to know about peer-to-peer
lending is that it is not a short term investment.
Peer-to-peer lending tends to be about a three to five year
investment, so if you are looking to buy or build a
house in the next two to three years, peer-to-peer
lending might not be the best choice for you.
But if you don't heed my advice and you still
want to give it a try, at least follow this.
If you do peer-to-peer lending, do not have the interest
re-invested back into new notes.
What happens is those re-investments are now
re-invested back into new notes, extending that
period for an additional three to five years, and if you're
needing to sell those notes or to get them into cash,
they're just a process that's not gonna be as quick as
you think it's going to be, especially if you
need a down payment on that home.
Okay the final thing that you can do is
investing into ETF's, Exchange Traded Funds.
I like ETF's in this particular situation
because they're very, very low cost.
Now ETF's comes in all flavors, you could do stocks,
bonds, commodities, real estate, and all of the above.
Since we're talking about short term, we want to have
more of an emphasis on short term bond ETF's in that one to
three year mark, and I wouldn't go any more than 40% into
stocks, actually I'd be more like 20%, but whatever your
risk tolerance is and what you're comfortable with.
Now if you're not comfortable with choosing your own ETF's,
one of the best platforms I can recommend is
Betterment, and that's betterment.com.
Betterment will manage your ETF portfolio for you
based on whatever your goals are, so you can put your
money in and then Betterment will decide the right ETF
strategy for you, based on when you need the money, in
your case, two to three years, and how much risk you're
comfortable taking, and you don't have to do
anything, they do it all for you.
So Tien, I just once again want to say
thank you for asking that question.
When it comes to short term investing, I know that you
wanted something creative, but what I've recognized is that
when we start to be creative, especially with short term
investing, we end up finding ourselves into
creative problems, or creative holes or pitfalls,
so be careful not to be too creative.
Some of the options that we discussed today are a
great fit, especially for what you're looking to achieve.
So if you're a fellow GFC out there and you also have a
question like Tien, I encourage you to go to
goodfinancialcents.com/ask so that I can answer
your question on the next edition of GFCTV.
Until next time, this is Jeff Rose, take care.