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Marianne D. Fishler: How to put cash on the sidelines to good use

You’ve no doubt heard that there is a lot of “cash on the sidelines” as people wait for the most opportune time to leap into this highly volatile stock market.

My belief is that the time to invest is when you have the money and the time to sell is when you need the money. However, if you are one of those hoarding cash and are not comfortable investing in stocks and bonds right now, you may be wondering if there are alternatives to parking in a money market earning next to nothing. There are.

First, remember that good financial planning prescribes that you keep four to six months of living expenses easily accessible in a liquid bank account for emergencies. This is especially important now when unemployment remains high and many folks are concerned about job security. If you have that need taken care of, and you still have some idle cash, consider the following.

Are you maxing out your 401(k) and IRA contributions? While these contributions would be considered market investments, they have the added potential benefit of a current year tax deduction, and earnings in these investments accumulate tax deferred. With the ongoing discussions around the uncertainty of Social Security, taking responsibility for your own retirement has never been more critical.

Consult with your tax advisor and 401(k) or 403(b) administrator on the maximum contribution you can make in 2011 and when those contributions need to be made.

Another critical reason to max out your 401(k) contribution is that many employers offer some type of matching contributions. Whatever the match amount, this is “free” money to you that you can rely upon to increase your retirement savings.

Pay off high interest credit card debt. Carrying credit card debt is, in most cases, a bad idea. If you have balances and idle cash, this is a “no-brainer.” The interest rates are likely high, 20 percent or higher in some cases, and are generally not deductible, so there is no economic advantage to carrying a balance on these cards.

Should you pay down or pay off your mortgage? The answer to this is not as clear.

The interest on mortgage loans up to $1.1 million are generally deductible (check with your tax advisor), so if you pay taxes at a 30 percent federal marginal tax rate, and you have a mortgage at 5 percent interest, your after-tax interest rate is actually 3.5 percent.

In this scenario, if you believe you can earn more than 3.5 percent in other investments (like the stock market), then paying off the mortgage may not be the best use of these funds. Consult your advisor to determine if this strategy makes sense for you.

Finally, if you have idle cash, then you may want to consider sharing your blessings with others. Many of our neighbors are in desperate need of food, shelter, and access to health care. It may be that investing in your community is the best use of your idle cash.

Charitable contributions may be tax deductible (consult your tax advisor for rules and limitations), and the feeling of helping out a neighbor in need is priceless. There are many local resources to help you decide which charitable organizations might be a good fit for you.

Marianne D. Fishler, CFP®, is president and co-founder of Baltimore-based Foundry Wealth Advisors LLC. Investment Advisory Services are offered through Donnelly Steen & Co. d/b/a Foundry Wealth Advisors, a US SEC Registered Investment Advisor, 1201 N. Orange St., Wilmington, Del. Securities are offered through Coastal Equities Inc., member FINRA/SPIC, 602 Main St., Cincinnati, Ohio. Foundry Wealth Advisors LLC is a separate company from Donnelly Steen & Co. and Coastal Equities Inc. Contact Marianne at marianne.fishler@foundrywealth.com or 443-692-8833.