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Savings in a mattress? Big mistake

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Dear Dr. Don,
Everything is paying such low interest. Should I just keep some cash on hand like under the mattress — maybe $2,000? I also have $7,000 in a credit union checking that earns 0.06 percent. I have most of the rest of my money in Franklin Income Fund Class A shares. What should I do?
— Robert Reserves

Dear Robert,
Hiding cash in/under the mattress is never a good idea. Remember the 2009 story of a woman in Tel Aviv who had $1 million hidden in her mattress? Her daughter bought her a new mattress and the old one went to the dump, along with the $1 million.

I couldn’t find any news stories saying she recovered the money; maybe it was just an urban legend, but it sure did get extensive news coverage. I do know that when my house was burglarized the thieves flipped over every mattress in the house.

When you invest cash, you receive some combination of safety, convenience and yield. Right now, the yield component on your cash investments is negligible, but cash in a checking or savings account still has safety and convenience features that money stuffed under the mattress can’t replicate. Your mattress isn’t FDIC- or NCUSIF-insured and doesn’t have a debit or check-writing privileges.

I’m not a fan of mutual funds that charge a sales load, like your Franklin Income Fund Class A shares. That said, sales loads are one way to pay your financial professional and, since you’ve already spent that money in fees, you need a better reason than that to move the investment.

Keep enough money in cash to meet your liquidity needs and to have an emergency fund. Beyond that, you have to decide how to invest the money. That decision should be based on your financial goals, and your attitude toward risk.

Your income fund takes on a fair amount of risk to get the yields it earns on its investments. If you weren’t aware of that consideration, you have to decide if that’s right for you.

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