What Is a Strong Financial Instrument?

2020 has been a whirlwind for many of us and many people are reevaluating their portfolios with new or different perspectives. At CFG, we believe a strong financial instrument consists of these 4 components.

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1) Liquidity - How quickly can you get your hands on your money for immediate use? Is there a penalty to access your money?

Here is some examples:

1. Checking, Savings & Money Market accounts - Liquid accounts

2. IRA's or 401(k)s - Some of us might think these are liquid accounts. However, investments in the accounts might need to be sold in order to get cash. Also, withdrawals before 59 1/2 might incur a penalty.

3. Home Equity - Not liquid! It usually takes 1 of 3 ways to convert our home equity to cash. Selling home (incur commission), refinance or home equity loan/HELOC.

Why is liquidity important?

• Liquidity gives you flexibility.

• Liquidity determines how much CONTROL you have with your money.

2) Safety - Is your principal protected from market losses? Can you participate in the market upside but be protected from the downside?

Many of us have been told that "Risk & Return" means in order to achieve a certain rate of return, you have to take a certain amount of risk. This investment culture has been taught to us for a long time but is that really true? Ask your financial advisors the options to protect your principal while taking advantage of the market upside.

3) Rate of Return - Here comes the magic of COMPOUND RETURN. COMPOUND RETURN allows you to earn interest on your earnings and principal.......make your money grow faster. Is your financial instrument providing you the snowball effect of compounding?

4) Tax Advantages - Tax advantages are different from being tax deferred. Tax deferred simply means you are putting off paying taxes until a later date. Ex, Traditional 401K or IRA, you are delaying paying taxes for now but will pay taxes later on your total account value. Depending on your future tax bracket and future account value, you might end up paying more in taxes. We are referring "tax advantages" to financial strategies that help accumulate money tax free and access money tax free.

Hope this helps provide some framework as you look for ways to safeguard your money from the unknown, prepare for opportunities that 2021 may present or simply to reposition your assets.

As always, feel free to reach out to us to discuss your particular situation.

Stay Safe!

* The opinions expressed herein are provided for informational purposes only and are not intended to provide tax or investment advice. Each individual circumstances vary widely, please seek legal, tax and/or professional advice for your particular situation.