Do you have a stockpile of cash or a bank account with a lot of money you’re not sure what to do with? If so, you’re not alone – according to ici.org, the week ending 3/31/2022 saw an addition of $29.73 billion added to money market investment funds, bringing the total to a towering $4.59 trillion. And this doesn’t include the trillions more in cash equivalents in bank accounts across the US.

Many clients and friends I talk to tell me they have extra cash on hand. Reasons for how this cash came to be varies, whether from regular savings, a liquidity event, portfolio sales that haven’t been reinvested, and the list goes on. Their questions, however, haven’t varied much at all. Even though cash is still yielding close to nothing, is now a good time to invest with all the geopolitical issues, rising interest rates, and inflation fears dominating the news cycles? The best time to invest involves careful consideration, and should be based on more than just the current landscape of the stock market or increasingly high interest rates.

A logical follow-up to this question would be a conversation focused on their portfolio in the context of these environmental factors and their risk appetites. But this scenario presents an excellent opportunity to put the horse back before the cart. Here are three steps to take to determine the right cash investment decision for you and to avoid financial planning issues.

1. Review Goals

Why are you investing in the first place? What quantitative or qualitative objectives compel you to continue saving and investing? The answers to these questions may not have changed much if you’ve gone through this exercise before, or they may have changed considerably. Regardless, it’s easy to lose sight of big-picture goals in favor of investment returns, especially following consecutive years of double digit returns in the S&P 500. High investment returns tend to be what garners the most attention from friends, and it’s certainly a great way to get clicks on online articles. But those figures are not necessarily key to successful retirement planning; just ask your retirement CPA.

2. Projections

Once your goals have been updated, it’s time to use one of the many great project programs currently on the market. Gone are the days of simplified and linear analyses to calculate, at a constant rate of return, whether you will have enough money to meet your goals. Today’s software offerings can factor in a diverse set of outcomes, varying based on your precise investment allocation, both now and in the future. These projections can factor in higher inflation, rising interest rates, and likely anything else that may cause trepidation when thinking about your investments.

3. Stress Test

It’s one thing to use a projection to gain a sense of where you stand currently in relation to your spending goals, but the real magic is visualizing the sensitivity of your plan to changes in the inputs. Most of these programs allow you to stress-test your plan to illustrate the impact higher spending, higher inflation, lower income, or any other risk to a plan has on your particular outcomes.

Why follow these steps?

In many cases, I’ve seen projection outcomes where a client’s plan looks good under current circumstances, but actually improves with a lower amount of risk in their portfolio. The best chances for retirement may be the lower risk option. It seems counter-intuitive that less return would improve the probability of success, but projection software these days is sophisticated enough to show the value of reduced volatility in a retiree’s portfolio.

This result is especially profound when there are decisions to be made like the ones outlined at the start of this article. To arrive at the understanding that you don’t need to invest your cash in stocks to meet your goals, or maybe you don’t need to invest it at all, is quite the freeing and refreshing realization. On the flip-side, the projection may show that you can be fully invested and weather a downturn, as long as you stay invested and allow your investments to rebound where possible, which should calm nerves for investors who are typically more risk-seeking.

With the context provided by this exercise, no longer is the conversation revolving around “What should I do?” but more so “I now see what I can do.” And for those investors who are in less favorable financial standing in relation to their goals, the conversation becomes “I now see what I need to do.”

Both of those resulting frames of mind are more actionable, and erase much of the “unknown” that can create stress and cloud a decision on what to invest in now.

A caveat: Maximizers

There is one group of investors who may not find comfort in this exercise. I like to call them the “maximizers.” These investors feel the need to reach for greater returns, regardless of the implications their projection may provide. To allow this exercise to reduce investment stress, I would challenge this group of investors to take off their maximizer hats, if only temporarily, and try to focus on their specific spending goals and big-picture results instead of returns.

In summary

It’s human nature to want to act when things seem to be changing around us. Now that it’s so easy to keep up with the enormous amount of news via catered services to our phones, tablets, and computers, this innate compulsion to act is greater now more than ever. For a lot of investors, however, this creates something called “analysis paralysis.” This phenomenon occurs when you have so many opposing variables and viewpoints around which actions are best, that you end up doing nothing.

The best antidote to this paralysis is to take a step back, review goals, utilize some great projection software, and make investing decisions with confidence.