Three Common Money Moves Experts Dismiss, According to Morningstar

Christine Benz, director of personal finance and retirement planning at Morningstar, states that she is not concerned when clients make three specific financial decisions that often draw criticism from peers. Benz, who co-hosts The Long View podcast, says these moves are typical of individuals with stable financial lives rather than those in distress.

The first decision involves paying off a mortgage early. Benz acknowledges that current interest rates on certificates of deposit and high-yield savings accounts often exceed the rates on mortgages secured years ago. She notes that younger investors with long time horizons should generally prioritize stocks for higher returns. However, Benz observes that most people who prepay mortgages have adequate emergency reserves and retirement savings. She describes the payoff as a peace-of-mind allocation and says she has not met anyone who claimed the payment prevented them from meeting other essential financial goals.

The second decision is holding extra cash. Benz admits that cash has historically underperformed bonds and stocks, often barely edging out inflation over long periods. She warns that a large cash position is problematic for younger investors with limited exposure to long-term securities. Conversely, she sees heavy cash stakes as common among individuals over 50 with ample portfolios who value liquidity and stability. Benz cites author Bill Bernstein, who said, “If you’ve won the game, stop playing.” She argues that this allocation provides safety, provided the individual maintains a separate investment portfolio for long-term growth.

The third decision concerns choosing traditional tax-deferred contributions over Roth accounts, or vice versa. Benz notes that the “correct” choice is often a guess because investors cannot predict future tax brackets or secular tax rate changes. Her advice is to save the maximum amount one can afford and make the best estimate on the contribution type. She also suggests using traditional, Roth, and taxable accounts during accumulation years. This strategy allows retirees to draw from different accounts later to limit their tax burden.

Benz provided this analysis to The Associated Press. She serves as the director of personal finance and retirement planning for Morningstar and writes the free newsletter Improving Your Finances.