Have that cash conversation…and other tips

Inflation is the headline that investors are hearing about every day and the possibility of a recession in 2023 is something that cannot be ignored, according to Frank Bonanno, Managing Director and Head of Marketing at StoneCastle Cash Management LLC, (Stonecastle) a firm dedicated to providing funding to community banks and to create unique cash products for institutional investors.

“While most advisory clients are high(er)-net-worth individuals, rising prices may not consume their every thought like the many that live paycheck-to-paycheck,” Bonanno told Advisors Magazine recently. “But that isn’t a reason that advisors should avoid obvious questions about short/mid-term cash and liquidity needs,” he added.

Bonanno explained that while a combination of laddered Treasuries and money funds are the norm for the small percentage of cash held within managed portfolios, the bulk of client cash lies outside of the advisory relationship. “It is important to speak about this held-away cash in conversations that address the ‘inflation’ and ‘recession’ buzz words,” he said.

Bonanno points out that rates on money center banks (which hold two-thirds of all cash deposits in the country) are low; And until recently these banks had no incentive to increase their rates on savings accounts as many had excess liquidity and a lightening of the balance sheet was welcomed.

“Your clients will appreciate that you are mindful of these deposits and how you can help them increase their rate of return, insure more of their cash, and all the while deepen your relationship,” is Bonanno’s message to financial advisors. “With cash currently one of the best performing assets for 2022 (second only to commodities) it is prudent advisors have the cash conversation with their clients,” he summarized.

Chris Everett, president of Illinois-based Everett Wealth Solutions, Inc., agrees that it’s possible to produce positive gains in a declining market and that during inflationary/recessionary times it’s vital to work with a money manager who can tap into such assets.

More specifically, she recommends working with a fiduciary financial planner.

“A good fiduciary should more than pay for themselves with the wealth leaks they find,” Everett told Advisors Magazine. “Leaks may be hiding in your cash flow, asset fees, tax documents, legal documents, insurance coverages, debt structure, employee benefits and more. And it may mean tens of thousands and usually much more over your lifetime,” she emphasized.

According to Everett, who’s also a published author, Millennials and Gen-Z may have the toughest time because of inflation.

“Millennials and Zillennials are in for a rude awakening,” she said. “If you wanted homeownership, you’ll need to cough up more for a mortgage payment than when interest rates were at 2%-3%,” Everett pointed out.

“Already, many have been priced out of the market. Rents are no picnic either. So, with rising food and household item inflation in the high double digits, rents rising, aging off a parent’s health insurance, the price of fuel . . . you can see the stress the Millennials and Zillennials will be under. . . especially if they have not been good savers,” she said.

Everett noted that during the inflation/recession of the 1970s-80s, many people took second jobs.

“Will Millennials and Zillennials consider that?” she asked. “I don’t know. The destination weddings, lavish dine-out dates, extracurricular child activities, new high-cost cars--may need to be curtailed.”
Lori Van Dusen, CIMA®, CEO and founder of Pittsford, NY-based LVW Advisors, agrees that inflation has already hit younger generations the most.

“The reason millennials are being hit the hardest by price hikes has a lot to do with spending habits based on their life stage,” she told Advisors Magazine. “It's the latest way the economy has financially hit the generation, who already struggle with student loan debt and now a significant decrease in the affordability of housing due to supply and demand issues and rising mortgage rates.”

Van Dusen notes, however, that inflation is cyclical; it doesn’t last forever, and younger generations can perhaps get ahead of it with some sound guidance.

“Financial planning is key and young borrowers also need to keep their credit lines as lean and efficient as possible, using them to build up credit worthiness,” Van Dusen said. “They’ll have limited options when it comes to rising energy bills but can switch or negotiate down other contracts like home broadband or car insurance policies when they come up for renewal. A good financial advisor can help here,” she added.

There are some practical things, nonetheless, that younger people can do on their own, and Everett offers several tips:

• Buy necessities.
• Buy on sale.
• Find inexpensive fun things to do.
• Save as much as you can. Check out NerdWallet for the best savings accounts. You can get 3% as of this writing.
• You don’t need to upgrade your car if it gets you to where you need to go.
• Get a second job if you can.
• Some may even need to move back with mom and dad!