This week in financial planning, we discussed how to manage checking and savings accounts. Cash management typically refers to the way checkings, savings, MMDAs, CDs, and MMMFs are used to handle cash flows. When looking for a financial institution to provide these services, one should consider the kind of services provided, the safety of the money, the coast of achieving financial goals, and the type of personal relationship provided.
Individuals who have a need for immediate access to his/her funds would consider liquidity to be a highly important need within their investment strategies. Assets with higher liquidity face a risk-return trade off. Since higher liquidity requires more access to funds, more liquid assets tend to have lower returns than less liquid assets; therefore, the relationship between liquidity and return is negatively correlated.
An assortment of savings tools allow investors to manage cash. First, interest-earning checking accounts, or negotiable order or withdrawal (NOW) accounts pay the holder more interest than a typical savings account. Regular checking accounts can act as demand deposits, or non-interest bearing accounts, or as NOW accounts. Small fees are typically required of checking accounts. Second, savings accounts such as statement savings accounts, Passbook accounts, certificates of deposit, etc. In order to save, individuals should pay themselves first in order to build an emergency fund. Third, money market accounts are slightly less liquid than the previous accounts and are a bit harder to pull funds from; however, they have higher interest rates that are variable. Fourth, money market mutual funds pool funds from many investors to buy higher prices securities. Investors can reduce their risk by investing in these securities since they are comprised of multiple securities in varying industries.
Article 1 - Why You Should Open a Roth IRA Account
(September 30 - October 6)
Individuals who have a need for immediate access to his/her funds would consider liquidity to be a highly important need within their investment strategies. Assets with higher liquidity face a risk-return trade off. Since higher liquidity requires more access to funds, more liquid assets tend to have lower returns than less liquid assets; therefore, the relationship between liquidity and return is negatively correlated.
An assortment of savings tools allow investors to manage cash. First, interest-earning checking accounts, or negotiable order or withdrawal (NOW) accounts pay the holder more interest than a typical savings account. Regular checking accounts can act as demand deposits, or non-interest bearing accounts, or as NOW accounts. Small fees are typically required of checking accounts. Second, savings accounts such as statement savings accounts, Passbook accounts, certificates of deposit, etc. In order to save, individuals should pay themselves first in order to build an emergency fund. Third, money market accounts are slightly less liquid than the previous accounts and are a bit harder to pull funds from; however, they have higher interest rates that are variable. Fourth, money market mutual funds pool funds from many investors to buy higher prices securities. Investors can reduce their risk by investing in these securities since they are comprised of multiple securities in varying industries.
Article 1 - Why You Should Open a Roth IRA Account
- Retirement Flexibility
- Tax diversification
- Easier to access money before retirement
- Leave money to heirs
- Convert your existing savings to a Roth
- To reduce their gross taxable estate
- To transfer income–producing assets to a beneficiary who may be in a lower tax bracket
- Simply because they wish to benefit someone and see them enjoy the gift
(September 30 - October 6)