Where Should I Invest My Cash?

As an investor, deciding where to invest your hard-earned cash can be a challenging task, especially in the current economic climate. With the economy on the brink of a recession, recent bank failures, and plummeting real estate affordability, finding a safe place to invest cash for the short-term is of paramount importance. The good news is that despite the turmoil caused by inflation and the aggressive rate hike cycle of the Fed, savers can now actually earn something on their cash.  This  was near impossible over the last five years. In this article, we will explore some of the most promising investment opportunities for investors who want to earn a safe yield on their cash over the next 6-12 months.

If You Have Cash Investing in Money Market Funds Is A Good Idea (>4%)

 Money market funds are a type of mutual fund that invests in high-quality short-term debt securities such as Treasury bills, certificates of deposit, and commercial paper. They offer liquidity, diversification, and relatively low-risk with yields that are typically higher than traditional savings accounts. Fortis utilizes Schwab and Fidelity as our primary custodians, so for our clients right now we are typically recommending the Schwab Government Money Fund (SNVXX, currently yielding 4.26%) and Fidelity Government Cash Reserves (FDRXX, currently yielding 4.21%). You can earn slightly higher returns in the commercial paper alternatives, but given the stress on the economy right now we prefer to utilize the ones that invest in government securities.

Certificates of Deposit Are A Good Place To Invest Your Cash (>3%)

CDs are a type of savings account where you deposit a fixed sum of your cash for a set period of time and earn interest on it. They are FDIC insured and offer a guaranteed return, making them a low-risk investment option. The longer the CD term, typically the higher the interest rate offered.However, that’s not always true today because we have an inverted yield curve. Go to your current bank’s website to see what kind of rates are available. Most banks are paying 3-4% for 3-12-month lockups. Also, check your local credit unions as they often  have better rates than the big megacap banks. Given the current environment, we don’t recommend putting more than the FDIC insurance limit of $250K into any one bank at a time.

Investing In Treasury Bills Can Increase Your Cash’s Value (>4%):

T-bills are short-term government bonds that mature in less than a year. They are considered one of the safest investments available as they are backed by the full faith and credit of the US government. T-bills are a popular option for investors in the current environment looking to earn a reasonable return from their cash, with minimal risk. At the time of this writing, 3m T-Bills are yielding 4.56%, 6mo yielding 4.54% and 1yr yielding 4.30%. It’s worth noting those are annualized returns (you will not get paid a full 4.56% for 3 months on a 3mo T-bill, you will earn ~1/4th of that amount, which would annualize to 4.56%).[CC1]   T-bill interest is taxable federally, but not for state and local (if you live in high income tax states like CA or NY).

Try Investing Your Cash In High Yield Savings Accounts (>3.75%)

High-yield savings accounts are savings accounts that offer higher interest rates than traditional savings accounts and are a great place to put your cash that isn’t doing anything. They are FDIC insured and offer liquidity and easy access to cash. Two of the most popular are Marcus by Goldman Sachs (currently offering 3.75%) and Ally Bank (currently offering 4.5%). Both are online banks making it very easy to setup and maintain. As with CDs, given the current environment, we don’t recommend putting more than the FDIC limit into any one bank.

Blackrock iShares Target Maturity Bond Funds (>5%)

Blackrock has created ETFs which, rather than being open ended and owning specific duration bonds which need to be recycled out of the portfolio as they age, are actually held until maturity. Therefore, you can feel confident you will actually earn the yield to maturity when you buy the fund rather than find yourself in a situation like many bond investors in 2022, who were down substantially on their bond portfolios. The iShares iBond Dec2023 Corporate ETF (IBDO) is currently yielding 5.7% and the iShares iBond Dec2024 Corporate ETF (IBDP) is currently yielding 5.16%. These funds own high quality corporate bonds. It’s worth noting, if we enter a very nasty recession, it’s possible some of these companies could default. So compared to owning Treasuries, these have higher default risk, which is why their yield is higher.

With inflation at higher than historical levels, the purchasing power of cash is eroding. For the first time in many years, there are a number of safe investment alternatives for investors looking to earn yield on their cash. We believe it is important to ensure your cash is invested in a safe alternative yielding at least 3% in the current environment.