What To Do With Your Cash During A Financial Crisis
Right now people have a high amount of money is sitting in cash in the US. In fact, according to a report from the Bureau of Economic Analysis released April 30th, 2020, in March personal savings as a percentage of disposable income was 13.1%, the highest rate since November of 1981 A sign people are uneasy about the volatility in the economy right now and no one knows how this will all play out. The good part of having moved your money to cash is you won't lose any. The bad part is now your money is no longer working for you. Rebels, you're probably asking yourselves, "what can I do to start making your money work for you again." Well we have 3 tactics to help you answer this question. First we'll discuss opportunities right now, then how you can start making your money value increase, third will be tax considerations.
[00:54] Kevin: Today we're joined by our other co-host Brian Dumont. We're going to have an important discussion about what's going on in the world right now because there's a lot of turmoil out there. Today we're talking about what to do with your cash during a financial crisis
[02:10] First we're going to talk about the opportunities right now, then how you can start making your money value increase, and then we're going to talk about tax considerations
[02:38] What kind of opportunities are there?
[02:44] Brian: I have always believed that in fact there are always opportunities and that when change occurs, we have to look for those opportunities. Even though you may have given up much of your earnings over the last full market, if you are one of those people that have a portfolio that has suffered, what that means is that this is a time where you can actually harvest some of those losses and use this as an opportunity to transition to a different position
[03:52] For example, you could move from a taxable position to a tax free position. You could move from a high risk position to a lower risk position
[04:06] When you move after you have taken losses, there's no tax penalties for moving (a great opportunity to move in the direction of safety)
[05:00] Kevin: That's the problem right now. There's so many "could's" (this could happen) which creates this uneasiness which is why so many people are sitting in cash. So it's great to take advantage of opportunities, but what about the people who are thinking about that safety? They want to do something a little more safe but their money is below inflation. What can our rebels do to start earning money on their cash being safe and the value increasing again?
[05:42] Brian: During the last recession in 2008, a lot of people did eventually move to cash usually too late, and then they sat in cash for too long (they missed the upswing back). As a WTR, we don't want to be normal. We want to go where the opportunities are and move in our own direction
[06:20] That means in this time, you don't have to let your money sit around waiting until you're comfortable to move back into equities to make money or looking for some other investment. You can start making money right away
[07:15] Suppose you have $100,000 sitting in cash right now because you don't know what to do. If you could get 5% tax free on that, over the course of 12 months that's $5,000. Over the next 3 years, that's over $15,000, which is something
[08:28] Strategic opportunistic approach to making your money work for you starting immediately (a good position to be in)
[09:22] Kevin: Along with the opportunity and getting your money to start increasing in value again, another thing I wanted to mention is taxes. So, why is taxes such an important part of this? People don't always consider the big picture of this, but if you're going to be a rebel and you're not going to listen to what everyone else is doing, why is it important?
[09:42] Brian: Well let me give you a quick example with some numbers to start and then I'm going to give you another example that has to do with tax direction
[09:48] With the numbers example that I started earlier with the $100,000. And I said $5,000 in one year while you're sitting on the sidelines, which would you rather have: nothing or that $5,000? If we take that example and compound it out overtime to look at the time value of money, that's 5% tax free (you have doubled your money in just 15 years)
[10:40] Your decision today to move from cash to earning even a solid predictable 5% tax free can have a huge impact on your financial life going forward
[10:55] The second part is where are taxes going to go? Think about this for a moment. The government right now is doing everything it can to try to revive the economy, to stimulate things, to keep us out of recession and depression. We're looking at over $8 trillion already put into the system by borrowing money essentially. How are we going to pay for that? No one is asking that question right now
[12:34] There's only 2 ways money can come from: growth in the future (which we hope will happen) and from future taxes
[12:53] If you look at the history of income taxes overtime, what you find is that the US government after the great depression didn't cut taxes. They raised taxes
[14:42] I have this cash, let's take that portion of my portfolio and move it into a protected position (tax free account) so the government won't be able to tax the heck out of me down the road to pay for this pandemic (that's a WTR move)
[15:06] There's no need to sit in cash, you can begin transitioning and use this as an opportunity to move into a safe tax free position immediately starting today