Financial Planning Money Management

Do You Own Lazy Money?

When it comes to wealth management, money can do two things. It can earn interest, or buy stuff.

Your money can earn interest:

Your money may be lent to a financial institution and in return they pay you an interest rate. For example, a bank may accept money from you, the depositor. They lend it out to a borrower. The bank charges the borrower an interest rate, and then keeps a spread/portion of the rate charged to the borrower. The bank covers their expenses first and then keeps some for a profit. Finally, they pay you, the depositor an interest rate out of what is left over.

Insurance companies issuing interest-bearing products like fixed annuities and fixed life insurance do something similar. They receive premium payments from people who purchase their products. The insurer then lends that money to institutions like large corporations and the US government. For example, the insurer may buy long-term debt such as corporate bonds and government treasuries. The insurer receives a yield on these investments. The insurer then keeps a spread/portion of the yield earned to cover their expenses and to make a profit first. Finally, they pay the policyholder an interest rate out of the remaining yield. 

Your Money Can Buy Stuff:

Your money can be used to purchase stuff. You could use money to purchase tangible and intangible property. For example you might use money to purchase food, clothing, shelter, automobiles, cell phones, fuel, etc. You may also use it to purchase services such as healthcare, lawn care, or any other service in which you trade your money for someone else’s expertise and time.  

Did you buy investments?

Your money may also be used to purchase investments. For example, you may purchase stocks, bonds, mutual funds, and so on. There are many reasons to buy investments.

Maybe you own investments, like a share of common stock. You may have bought it hoping the stock price goes up. In other words, you invested for appreciation. You hope it is worth more than you paid for it at the time when you need to sell it in order to buy something else like food, clothing, a new car, or you may need to pay for services like healthcare. In order to use that money that was invested, you will have to sell the investments to someone else first. Liquidating investments provides the necessary cash needed to make your essential and discretionary purchases.

Perhaps you bought bonds or preferred stock because you want to earn dividend yield income that these investments provide.

Nevertheless, when you own an investment. you bought something with your money. Before that money can be deployed somewhere else to purchase goods and services, your investment must be sold. Hopefully for you, someone is willing to pay you more for it than when you bought it. This is not a guarantee, and sometimes you may be forced to sell your investments for less than you paid for them.

What Is Your Money Doing Right Now?

With regard to your retirement assets, ask yourself these questions.

  • “What is my money doing right now?”
  • “Is it earning interest?”
  • “Was it used to buy something?”

If you’re not earning interest and was not used to buy something then you might have Lazy Money. Money gets lazy when it is not being used to do one of the two things it can do with respect to wealth management.

Its like an able bodied person who won’t get up off the couch and be productive. We’d call that person lazy. If I did not get up every morning and go to work, my wife would call me lazy bum. She might call me some other choice words as well, and she’d be right!

Why Do People Put Up With Lazy Money?

Most people that have Lazy Money put up with it because they want to keep it safe and they want to have access to it. They want to keep it safe from investment loss. As a result, they won’t buy investments like stocks, bonds, or mutual funds with their Lazy Money because the value of those investments can rise and fall.  

On the other hand, they want to have access to their Lazy Money. Therefore, they won’t “tie it up” in long-term interest bearing vehicles like bank certificates of deposit or fixed interest rate insurance policies like fixed annuities.

Even though they may not like it, some people are content with their money sitting in a no interest, or low interest bearing account. For example, a savings account at a bank, or a cash equivalent in a brokerage account are two common places you might find Lazy Money.

One of the primary reasons people are willing to put up with Lazy Money is that they do not know of an alternative that exists. They are completely unaware of alternatives that provide protection from investment risk, earn a competitive rate of interest and allow for access to the money if it is needed. If they knew there was a way to put their lowest performing assets to work while permitting access to their money if-and-when they needed it, perhaps they would not be so tolerant of their Lazy Money anymore.

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