Cash is the ultimate portfolio stabilizer and for the last 10 years has provided little to no return. The Fed’s rate increases have changed that. Explore some options that are available.
In the past week, I have seen no fewer than six articles written about cash and where to stash it. It may have something to do with current interest rates coupled with an extremely painful bear market. The last time stocks AND bonds declined so steeply was in 1976.
This is no time to panic, however. Bear markets always end, (the average bear market is 14 months), and according to Terry Savage, “no one who ever rode out a bear market lost everything!”
The bright spots in all of this are cash deposit opportunities. We have experienced a low interest rate environment for several year. The all-time lowest interest rate in history was .5% in August 2020. The all-time high was 15.8% in 1981. Today the two-year treasury bond yield is hovering around 4%. This has created opportunities for those sitting with cash who are interested in increasing their risk-free yield while riding out the bear market.
Fidelity, Vanguard, and Schwab provide easy-to-use online capabilities for creating both Treasury and CD ladders. Laddering is a great way to create current income while taking advantage of rising interest rates. Laddering means creating a portfolio of bonds or CDs with staggered maturity dates. It is an easy way to lock in current yields with your safe money.
Other cash opportunities include hi yield savings accounts. At this writing, CIT bank is offering an APY of 2.7%. Nerdwallet lists other hi-yield savings accounts.
It is important to shop carefully.
One of the reasons we maintain cash balances in our checking/savings accounts is to have safe money (i.e. no fluctuations in principal). Be wary of unknown providers or products that give the impression of being stable (i.e. ‘market neutral funds’) but may have risks that are not apparent at first glance.