Strategic cash management fuels college and retirement.
Despite a combined income of $450,000 and $2.1 million in retirement savings, the Johnsons held an excessive $250,000 in low-yield checking and savings accounts. They were hesitant to invest it, fearing near-term college expenses for their children and unforeseen emergencies, but understood its drag on overall portfolio performance.
The Parking Ratio Calculator helped determine the appropriate level of liquid assets needed to cover 3-6 months of essential expenses. We identified that a 'parking ratio' of 5% was sufficient, suggesting they could comfortably invest $200,000 without jeopardizing their financial security. This allowed for increased investment in their existing portfolio, targeting an additional 2.5% annual return, generating $5,000 annually.
The Parking Ratio Calculator quickly assessed the Johnsons' liquid asset position relative to their monthly expenses. We factored in potential college costs and emergency fund requirements to determine an optimal cash reserve, creating a more balanced and efficient asset allocation.
$5,000 in additional annual investment returns, totaling $50,000 over 10 years, plus improved overall portfolio diversification and growth potential.
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