Where to keep your cash during
periods of inflation or high interest
rates depends on your priorities
by Hunter Satterfield, CPA
Unless you’ve been living in a
hut in the Andes since the
start of the pandemic, you
know that inflation is sky-high.
You’ve seen it in your supply prices.
You’ve felt it at the pump. You may
have even audibly gasped a few
times at the grocery store checkout.
As of August 2022, the Consumer
Price Index (CPI) is up 5.3% from
the same time last year. That means
Americans have roughly 5.3% less
available spending money, give
or take, than a year ago. Couple
that with a jittery stock market
that’s spooked by every interest
rate hike and earnings report, plus
war in Ukraine causing even more
uncertainty, and it can feel really
difficult to find a safe place to park
your cash savings that will return
anything more than pocket change.
Do you risk your hard-saved cash
in this roller coaster market? Do
you lock it up in bonds or certificate
of deposits (CDs) now that rates
should be climbing? Do you keep
it safely tucked away in a money
market piggy bank that’s earning
next to zero interest?
I get questions like these from
my clients all the time. My answer?
Investing your cash in times like
these is less about where you put
your money. It’s more about where
you put your priorities.
Running the numbers
Before we talk about where to invest,
it’s essential to look at how much you have
and what you need the cash for. I suggest
creating a 1–3–5 plan, where you split your
cash into short-term, near-term and long-term
Short-term cash is your emergency
fund. It consists of roughly six months to
one year’s worth of cash to keep on hand
in the event something goes wrong, like if
you lose a source of income or get too sick
to work for a period of time.
Near-term cash is money you know
you’re going to spend in the next two to
three years. You might be planning to remodel
a kitchen or buy a car for a teenager
in the next few years.
Long-term cash is money you won’t
need for at least five years (and for most of
us, even longer). This is the cash that you
earmark for long-term growth, possibly as
a bridge to retire early before your retirement
accounts kick in.
Breaking cash down into a 1–3–5
scenario helps investors prioritize the risk
versus the reward of earning larger returns
across the total of their funds.
For the vast majority of people, a good
chunk of the cash we’re talking about
here is our emergency fund—the cash we
should keep in a safe, no-risk account that’s
earning a few cents a month, if that.
During times of high inflation, investors
are often tempted to move that short-term
money into a vehicle that actually
earns some real interest, but I caution my
clients to resist that urge. In an inflationary
cycle like we’re in now, yes, our short-term
money is going to be worth less today than
it was yesterday. But in this situation, you
need to make an opportunity-cost decision,
where you recognize that your short-term
cash is going to be less valuable for a
period of time and be OK with that.
This is what I call investing with purpose.
The purpose of your emergency fund
is to be there when you need it. Period, end
of story. If it’s locked up in a two-year CD
earning 1%, and you get sick and have to
take significant time away from your practice,
the opportunity to earn 1% is going
to cost more than it’s worth.
For long-term cash, I assign a five-year
time period to the plan but everyone’s
“long term” is going to be different. It
could be five years if you’re closer to retirement,
but it could be 10, 20 or more based
on your age and when you plan to retire.
Regardless of the time frame, the principle
remains the same. Where you invest
your cash in times of inflation is not really
any different from where you would invest
it in any other economic climate. You
look at your long-term retirement goals,
then layer your cash accordingly to fit
your overall investment strategy, including
your 401(k)s, IRAs and other retirement
For the long-term money, I’m telling
my clients not to get caught up in things
like inflation, interest rates or Russia. We
have a strong economy. The market is going
to be fine over the next 10 to 20 years,
so mix your long-term cash into your larger
investment strategy and let it do its thing.
So now that short-term cash is stashed
safely away and long-term cash is layered
into a larger investment strategy, the only
real decision investors need to make is
where to put their near-term cash.
Near-term cash is really where the rubber
meets the road. This is the only money
you have that’s going to be affected by the
volatility we are seeing.
Remember, this is money you know
you’re going to spend in a few years on
something that is most likely really important
to you. Maybe it’s for your kids’
first car, a bucket list trip or your daughter’s
wedding. Either way, it’s personal to you,
and the key is to keep it that way. I tell my
clients to name it, give it a purpose. Make
it meaningful money because that’s exactly
what it is. This not only helps you keep
the money allocated to its purpose but also
helps guide your thought process when
looking for a place to invest it.
Because this is such a personal decision,
and everyone has different access to
investment vehicles, it’s virtually impossible
to recommend one place to invest
it over another without sitting down and
talking through the variables.
Let’s look at two examples.
Age 45. Needs money to pay for twin
daughters to attend college in three
years. About half of the anticipated needs
have been saved in a 529 plan, but short-term
cash is allocated to other things and
will not be able to cover the remainder.
In this type of situation, an advisor
might recommend looking for a more stable
investment, like a large-cap value fund
composed of large companies that can produce
dividends. Although there may not be
a lot of growth in dividends, performance
shouldn’t be based on returns alone. Performance
is equal to returns and risk. Investing
versus holding in cash allows you to
either use the dividends to buy more stocks
or use it as cash flow to help to pay for expenses
related to college.
Age 67. Newly retired and anticipates the
need to move aging parents into senior
living in the next three to five years.
Personal retirement savings is secure;
however, short-term cash is on hand for
monthly lifestyle needs rather than this
unexpected family situation.
In this case, managing risk is essential.
Investors should set low expectations on
returns in exchange for peace of mind. Designing
an allocation that has both bonds
and equities can offer protection while still
producing some returns when needed.
I can put on paper what you should
do with your short- and long-term money,
but I can’t generalize what to do with your
near-term money; that needs to be a custom
plan for you. That’s why talking to a
CPA or trusted wealth advisor is so important
in helping investors find the right vehicle
that’s going to serve their unique needs.
For CWA clients, we have access to
investments where, over a two-year period,
you can get a return on your money
that’s greater than just sitting in cash.
Just make sure, in addition to the higher
interest rate you’re getting, you also have
enough liquidity to access that cash when
you need it.
When you speak to an advisor, discuss:
- Your near-term goals, plans and
- How to invest your money to best
protect it from volatility in the market,
inflation and rising interest rates.
For investors fretting over their short-term
money devaluing: Take a deep breath
and try not to let it bother you. By all indications,
this inflationary period looks to
be transitory and should level out rather
For the long-term cash, it’s simple.
Ask yourself, “Is this five-, 10- or 20-year
money?” Then treat it as such and wrap it
strategically into your other long-term investment
For the near-term money, make it personal.
Make it real. Then talk to an advisor
about how to make it happen in a way that
grows your money but keeps it suitably accessible.
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Hunter Satterfield is
a partner and chief
investment officer at Cain Watters & Associates. He
received his Bachelor of
and Master of Professional
Accounting degrees from The University of
Texas at Austin. Before joining Cain Watters,
Satterfield was a senior tax consultant at Ernst
and Young, specializing in tax compliance and
consulting with individuals, partnerships and
corporations. He is a certified public accountant,
an investment advisor representative and a cohost
of the Accumulating Wealth podcast.