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Yes, Cash Has a Role in Your Portfolio

By U.S. News & World Report

For investors, cash need not be a four-letter word.

After all, without cash — money in a liquid account you can withdraw immediately without penalty — you can’t seize fleeting market opportunities. But those opportunities are only worth pursuing if they “fit into your overall investing plan,” cautions Craig Bartlett, vice president and division consulting manager for U.S. Bancorp Investments, based in Minneapolis.

It’s likely counterproductive to scan the market for potential bargains with a sum you are itching to invest. Bartlett recommends first defining the types of market opportunities that best advance your investing goals so you can move fast for the right reasons. Then, design your cash pool accordingly.

As a matter of functional money management, it is smart to have a cash account set up as a parking spot for money flowing in and out of your portfolio. Ahmad Adnan, a certified financial planner with Ameriprise Financial Services, Inc., based in Austin, Texas, says brokers call this a “sweep” account because it’s used to sweep money in and out of investments. That’s especially useful if you expect to be directing funds to several types of investments over a period, or, conversely, rolling money from maturing or performing holdings into a pool of money for a purchase.

The sweep account could be set up as a money-market account, short-term certificate of deposit in an FDIC-insured institution, or a similar account, Adnan explains.

“Don’t expect to make any money with it,” he adds. “Clients ask, ‘What’s the cash earning?’ and the answer is ‘nothing.'” He and other advisors agree that with interest rates so low, cash accounts are lucky to reap even a fraction of a percentage point.

That doesn’t make much of a difference when you are parking cash for a few months or a couple of years in anticipation of a major purchase, such as a house down payment. In fact, advisors agree, it’s smarter to table the funds in a cash account than risk losing some of it in an equity investment. The rule of thumb, they agree, is that if you need a certain amount of money on a certain date, keep the money in a cash account. “Cash is for short-term circumstances,” Adnan says.

The flip side is that the longer the cash languishes in the sweep account, the greater the chance you will start to lose money thanks to inflation, advisors say.

If inflation is at 2 percent, and you’re earning 0 percent, “then you’ve lost 2 percent of your purchasing power,” says David A. Frisch, president and founder of Frisch Financial Group Inc., based in New York. “People think of cash as a riskless asset, but it’s not.”

His recommendation: For any goal two years or more in the future, try to capture some return. “The shorter the time horizon, the less return you need. The longer the horizon, the more you should be thinking about capturing return,” Frisch says. An interim step might be to buy 10-year Treasury bonds, which are currently yielding about 2.1 percent, he adds. Those at least keep pace with the current inflation rate.

As you fine-tune your cash strategy, consider these points:

If your portfolio is large enough, you might allot as much as 10 percent of your conservative investments to cash. “This diversifies the conservative portion of your portfolio,” says Paul Jacobs, chief investment officer with Palisades Hudson Financial Group, based in Atlanta. “You can maybe take a little more risk with bonds.”

Be sure you know in advance if you’ll be dinged for transaction fees to move the cash from a maturing instrument to a holding account.

Forecast your likely financial moves with a cash holding account in mind. If you are likely to be rebalancing or shifting assets around, “you might need to have a decent amount of cash on hand,” Jacobs says.

If are working toward a major purchase several years out, “ladder your instruments so all the money is available at the right time,” Bartlett says. With various accounts maturing in succession, you can roll them into the cash account in an orderly fashion. “”Match the maturity for the purchase date for when you need the money. You want to actually allow a couple extra months for the transition, so do it early,” Bartlett says.

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Yes, Cash Has a Role in Your Portfolio originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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