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Introducing Cash Flow: Our Latest Investment Strategy

The Gatewood Wealth Solutions Investment Committee is excited to announce our new investment strategy: Cash Flow.


For those of you who have been with GWS for a while, you know that one of our core financial planning strategies is creating and maintaining clients’ cash Hub Accounts, which remain liquid should they be needed in the case of a market downturn. That way, clients can keep the rest of their money in the market, without needing to pull it out in uncertain times. This has been the cash portion in your personal risk bucket, which allows us to invest for long-term returns and weather bear markets in your market risk bucket.


The key is figuring out exactly how much money to keep in the cash hub and how much to keep in the market, which depends on a number of economic and personal factors (click here).


As a client, your cash Hub Account acts as an important buffer in providing you a sustainable cash flow no matter the economic conditions. This intentional margin of safety has proved quite helpful during the trailing three years of two bear markets.


But what if that money could also be working for you and earning interest, while still serving as a buffer?


Enter our Cash Flow strategy. This approach brings together the best of both worlds — keeping your cash Hub Account intact, while also using it to generate additional interest for you. Before we implemented this strategy, the money in cash hubs typically generated only 0.35%, or 35 bps. The National Deposit rate for savings accounts is 0.37% with checking accounts much lower.



Am I a Good Fit for the Cash Flow Strategy?


This strategy works best in certain situations, such as:

  • You meet the account minimum: $50,000 (24-month cash Hub Account target of $50,000)

  • You like the “personalized pension” approach: Prefer getting monthly checks, similar to pension payments, for living expenses

  • You’re planning to take out money for big lump sum purchases: Saving for a house, taxes, or anything big lump sum payment in the future with a known time horizon.


The goal of the strategy is to protect you from ever having to sell from your market risk portfolio during a drawdown. By growing your cash Hub Account now, you’ll be better equipped to keep your personalized pension payments coming while also preparing to take out lump sums in the future.


How Does It Work?

We've been coordinating the plan and delivering the personalized pension for clients for years; we just haven't yet maximized the yield in the cash bucket. Historically, we have raised cash to a 24-month target, meaning we don’t have to pull from your portfolio for two years. If you have 24 months of cash, you’re now leaving a lot of yield on the table considering the recent rise in interest rates. So, there is a spread to earn above pure cash (i.e., cash equivalents and bonds).


This strategy divides funds into four risk buckets: Cash Sweep, Cash Equivalents, US Government, and Credit.



  1. Cash Sweep is the shortest-term bucket that holds 0-4 months of expenses, providing the lowest expected return but daily liquidity.

  2. Cash Equivalent is for cash that will be needed within the next 10 months and is invested in money market securities with an average maturity below 60 days, offering higher expected returns than pure cash.

  3. The US Government bucket invests in high-quality US government securities with a longer duration, offering higher yields from the term premium.

  4. The Credit bucket invests in securities with longer maturities and higher credit risk, offering higher expected returns from the term premium and credit premium, with an investment horizon of at least 16 months.


By allocating your cash into funds according to time horizon and need, you can earn interest on your cash hub money while still keeping it appropriately liquid. While there is our Advisory management fee, it’s the same as your family’s current fee, and the yields net of fees are still much higher than the standard 35 bp interest you might make in a savings account or cash sweep account.


If you’d like to speak with your Client Care Team about this strategy and if it may be right for you, don’t hesitate to reach out!


* Please note that throughout this blog, “cash” refers to cash and cash alternatives, not cash sweeps, unless otherwise noted.

Disclosures

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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