March 2025 Blog Newsletter

Captain’s Log

The Hidden Cost of Cash: How Inflation Erodes Your Purchasing Power

At Anchor Wealth, we encourage our clients to maintain cash savings at their banks for emergency funds, sinking funds, and large expenses expected within the next 12 months.

Recommended Cash Allocations:

• Emergency Fund – Maintain 3 to 6 months of living expenses. For example, if your monthly living expenses are $5,000, your emergency fund should be between $15,000 (3 months) and $30,000 (6 months).
• Sinking Fund – Set aside cash for annual expenses such as real estate taxes. If your real estate taxes are $12,000 per year ($1,000 per month), you should be saving $1,000 per month in a sinking fund above and beyond your emergency fund.
• Larger Expenses – Keep extra cash for planned large purchases, such as a newer used vehicle or a home remodel project that are going to take place over the next 12 months.

Once these items are accounted for, excess cash should be invested to prevent inflation from eroding your purchasing power.

The Impact of Inflation on Cash
If you had an extra $100,000 in savings, here’s how inflation over the last six years would have affected its purchasing power (each year represents the annual cost of living adjustment):

• 2019 – 1.60%
• 2020 – 1.30%
• 2021 – 5.90%
• 2022 – 8.70%
• 2023 – 3.20%
• 2024 – 2.50%

The total cumulative inflation over this period is 23.2%, or an average of 3.87% per year. This means that $100,000 at the beginning of 2019 now has the purchasing power of only $76,800 at the end of 2024.

No wonder so many people feel the pinch at the grocery store, with rising real estate taxes and increased travel costs!

The Opportunity Cost of Holding Excess Cash
What if you missed out on potential growth by keeping $100,000 in cash instead of investing it?

• At a 6% withdrawal rate, $100,000 could generate $6,000 per year in income.
• Over 20 years, that’s $120,000 in lost purchasing power that you did not have to spend

Final Thoughts
While it’s essential to keep money in savings for emergency funds, sinking funds, and upcoming large expenses, any excess cash should be invested to avoid losing purchasing power over time. Understanding the effects of inflation, purchasing power, and opportunity cost is critical to maintaining long-term financial security. Call your Anchor Wealth Advisor today to discuss this!

Best,

Adam

Meet Antoinette Fisher

Antoinette joined the AWM team on March 10 as the new Senior Operations Specialist. She will work with the Paraplanners and advisors, helping them complete paperwork and providing customer service. If you are in the Rockford office, stop by and say hello.

Building Wealth the Right Way: Ignoring the Noise, Focusing on the Plan

Investing can feel like a roller coaster, there are ups, downs, and a lot of noise along the way. Every day, there’s something new grabbing headlines: the latest stock craze, a hot new crypto coin, or a friend swearing by the “next big thing.” It’s tempting to jump on the bandwagon. But here’s a simple truth: “It ends with a movie—don’t become the movie.” You don’t want your financial story to be a cautionary tale.

Remember the AMC and GameStop stock rush a few years back? People bought in at lightning speed because it seemed like everyone was cashing in. Some early investors made quick profits, but many others got caught up in the excitement and bought at the peak, only to watch their investments fall.

Don’t Chase the Shiny Things

It’s human nature to be drawn to exciting opportunities. When you hear stories of people doubling their money overnight, it’s hard not to think, “Why not me?” But before you dive in, ask yourself: What’s my plan? Is there a purpose behind this investment, or am I just chasing the excitement?

Investing based on hype or fear of missing out (FOMO) can lead to emotional decisions, buying high when enthusiasm peaks and selling low when reality sets in. We’ve seen it happen with popular investments like the ARK Innovation ETF (ARKK). It skyrocketed in 2020, attracting tons of investors, but those who jumped in late often faced losses of 40–70% when the market cooled off. Bitcoin followed a similar pattern, soaring to $69,000 in late 2021 before plummeting to $16,000 a year later. These stories aren’t rare; they’re reminders of how quickly things can change.

Slow and Steady Wins the Race

Building real, lasting wealth isn’t about hitting a home run with one lucky pick. It’s about consistent, disciplined investing over time. A well-balanced portfolio, tailored to your goals and risk tolerance, can weather market ups and downs better than a collection of trendy, high-risk bets. Jumping from one “hot” investment to another might seem exciting, but it often leads to stress, disappointment, and losses that could have been avoided.

Think about how much peace of mind comes with having a solid plan. Instead of checking your phone every hour worrying about market swings, you can stay focused on the long game, knowing your investments are aligned with where you want to go.

How to Stay on Track

• Stick to your plan: Quick wins are tempting, but slow and steady growth is more reliable.
• Check your alignment: Make sure your investments reflect your goals, not just market
  buzz.
• Be mindful of your circle: Sometimes, hearing only hype-filled advice can skew your
  judgment.
• Lean on an advisor: A trusted professional can help you stay grounded and filter out distractions.

The truth is, wealth is built over years, not overnight. Let Anchor Wealth help you stay on track with an investment portfolio designed to meet your goals.

Adam Ludwig, CEO/Wealth Advisor

Adam’s Nightstand

I recently revisited my notes on Today Matters: 12 Daily Practices to Guarantee Tomorrow’s Success by John Maxwell. I originally read this book in 2017, but its message resonates even more today—especially in a culture that constantly asks, What have you done for me lately?

The book’s premise is simple yet powerful: live in the present, and be fully present. Maxwell emphasizes that today is the most important day you will ever experience. Today is the key to your success.

He breaks this down into 12 daily disciplines, known as his Daily Dozen: Attitude, Priorities, Health, Family, Thinking, Commitment, Finances, Faith, Relationships, Generosity, Values, and Growth.

When I first applied this book, I focused on three areas to improve over the next 12 months. Looking back, simply writing down one goal for each of these 12 principles would undoubtedly lead to personal transformation.

Happy reading!

Would you like to read this book? You can find it on Amazon.