Time to Hit Pause?
Originally published March 12, 2025.
Well, we knew it could get bumpy. And here we are. As of 3/11, the S&P 500 was down -9.3% from its all-time high on February 19, 2025, and the NASDAQ is down -12.5% from its peak on December 15, 2024. For many, it feels much worse.
The most important thing we can tell you right now is that we’re on your side. As your financial advisors, our responsibility is to listen to you, to hear how you’re feeling about your portfolio, and to help you make good decisions for your peace of mind and quality of life. As fiduciaries, our responsibility is to give you our best advice for your long-term financial security. Finding the balance between short-term comfort and long-term prosperity is the greatest goal for our collaboration.
In this kind of environment, sometimes it helps to take a step back and hit the pause button. Find a way to make things simpler, not more complicated. Filter out the noise and complexity and consider your investment needs in their simplest terms.
One simple planning approach is to break things down into two straightforward categories:
Money I know I’ll need in the next 2 years; and
Money I know I can set aside for 10+ years.
Let’s explore each.
Live to Fight Another Day: Cash and Cash-Like Options for 2025-2026
In times like these, what many people seek is a “safety blanket” to provide stability, security and peace of mind.
If you think about the next two years, ask yourself these questions:
How much cash do you need for expenses and purchases?
How much do you want in your emergency fund?
How much extra to just make you feel better?
This is the amount to set aside in cash or cash-like investments.
Cash is the ultimate stable asset. If held in an FDIC-insured account, there is no chance of losing money. No matter what the stock market does, your cash will be constant. For people who need or want to hold a lot of cash, the good news is that rates on FDIC-insured accounts like high-yield savings and CDs are still appealing.
Online banks like Ally and Marcus currently pay 3.7% APY on high-yield savings accounts, though those rates will automatically adjust if the Fed lowers rates in response to economic weakness. Schwab’s money market fund pays 4.17%. As of March 11, 2025, a 3-month non-callable CD issued by MidWestOne in Kentucky is at 4.44%, and a 2-year non-callable CD issued by Goldman Sachs is at 4.0%.
These rates are high enough that very risk-sensitive clients may be comfortable locking them in for the next couple of years. Is this you? Reach out to us, and we can review your cash strategy together.
If you’re worried about inflation instead of recession, Series I savings bonds at TreasuryDirect are looking okay. They currently pay an annualized rate of 3.11%, and the rate will adjust again at the end of April. You’re capped at investing $10,000 per person per year, and the bonds can’t be liquidated for the first 12 months, but nevertheless they can be a good option for risk-averse people who want guaranteed inflation adjustments. (We’ve been talking about I Bonds for years.)
Finally, a creative option for homeowners with a lot of equity is to put in place a home equity line of credit (HELOC), but not necessarily use it. Having access to equity without needing to sell your home can give peace of mind for all the “what ifs” that creep into our minds during turbulent times.
The calculations to determine your desired cash reserves should be pretty straightforward. Once you have a plan for the amount you want to keep safe, then it’s time to think about your future self.
Stocks for 2035 and Beyond
With stocks experiencing massive volatility, is it time to get more conservative? I’m inclined to say that for investments that can be held for 10+ years or longer, the answer is “no.”
Throughout history, volatility’s kryptonite has been Time.
Tomorrow, the stock market might be up, or it might be down. It’s basically a coin flip.
Hold for a month, and stocks are up around 63% of the time.
Hold for a year, and stocks are up 75% of the time.
Give stocks more than 5 years, and your odds jump to being up well over 90% of the time.
This is why we often say, “It’s not timing the market, it’s time in the market.” Time is excellent at healing market wounds.
While these are challenging times for markets, we’ve experienced challenges in the past. Markets have weathered higher inflation. They have weathered world wars and recessions. They have even weathered tariffs. And yet, the stock market has delivered relatively high returns over the long run.
If the future is similar to the past, stocks could double every 7-10 years, give or take a year. If cash averages about 4% per year, it would take 18 years to double.
If you have more than 10 years to wait – and have sufficient cash to wait – which would you rather have?
Next Steps: Adjusting Plans and Carving Out Cash
Something we’ve been telling folks is that it’s possible to be both a short-term pessimist and a long-term optimist. By bifurcating your portfolio in such a way to provide short-term stability in cash and long-term growth in stocks, you can have confidence that your short-term self and your long-term self are both well cared for.
This market continues to be a challenge and there is no real clarity about it in the short term. Navigating uncertainty isn’t easy, but you don’t have to do it alone. If you’re feeling unsure about the road ahead, take a pause to assess your safety blanket. If you do choose to seek refuge in safer assets, lean on your financial advisor to help you find a balance between immediate stability and future opportunity.