Have you heard the story about the contractor who was renovating a bathroom in 2006 and found $182,000 of Depression-era cash stashed in the walls? Or, what about the story in 2009 where a daughter gave her elderly mother a new mattress and threw out the old one, only to later find out that Mom had hid $1 million of her savings in the old mattress? The moral of these stories is: Don’t hide money in places that you might not remember. It can be very easy to forget where you hide money.

Mattress Money

In times of economic uncertainty, people are often tempted to pull their money out of the market and convert it to physical cash. This is where we get the phrase “mattress money” — cash that’s been stashed somewhere other than a bank or other investment vehicle. While this might seem like a good idea in the short term when the markets are down, it can have costly consequences. What happens if your wallet gets stolen? Credit and debit cards can be canceled and replaced, but any cash you had is gone for good. The same is true for money stashed in your mattress, in a wall, under the floorboards or buried in a tin can in the tomato garden. If your home is broken into or damaged in a fire or other natural disaster, that cash is likely not protected by renter’s or homeowner’s insurance. It’s just gone.

Banks Are Better

Your money is almost always safer in a federally insured institution. Here your money is typically protected for up to $250,000 per person. Even when interest rates are low, you still earn some interest when you keep your money in a savings account or money market account. A pile of cash just hiding somewhere in the house isn’t doing anything for you, except possibly attracting trouble. Aside from turning your mattress into a glorified piggy bank, what should you do when the market is too volatile for your risk tolerance?

Don’t Panic

The first thing to do is not panic. Making hasty, emotion-driven decisions will likely hurt you more than the market will in the long run. It’s almost always a good idea to consult a financial professional before making significant adjustments to your portfolio. You especially want to be aware of any potential tax consequences associated with moving money around. Finally, know that you have options. Depending on your income needs and risk tolerance, there are ways to build up and protect your savings without relying so heavily on the stock market.

Consider Alternatives

For instance, you might decide you want to move a portion of money into less risky investments such as a fixed indexed annuity (FIA). These products are designed to protect your principal from market losses, while still giving you the ability to earn interest credits that are linked to the performance of a market index. Sometimes, these FIAs are used as a bond replacement in a diversified portfolio.

Another alternative you might consider is a multi-year guaranteed annuity (MYGA). A MYGA is the insurance industry’s version of a certificate of deposit. For the duration of the annuity contract, you are contractually guaranteed a fixed return. They’re generally shorter contracts than FIAs, and like an FIA, you don’t lose any money if the market goes down. 

Bottom Line

Whether accumulating a few extra dollars with a savings account, switching from bonds to FIAs with part of your investment portfolio or adding fixed-rate annuities to your portfolio, the most important thing to remember is to choose a vehicle that puts your money to work for you in ways that physical cash can’t. These are difficult times. Maybe you need a new advisor with an innovative approach.

Randy Yeisley is a local, independent investment advisor and is the founder and president of Yeisley Financial Group, Inc., located in northeast Wichita. He can be reached by emailing advisor@yeisleyfinancial.com or by calling 316.719.2900.