Where to put your excess cash
If you’re sitting on some cash that you don’t immediately need, it may be worthwhile to review options for socking it away. First off, you should always keep enough cash in case of an emergency or for a looming expense. This is called a cash reserve, and it’s generally suggested that you keep enough cash equal to 3 to 6 months of expenses on hand at all times. If you already have that accounted for, consider the following options for putting away your extra cash:
High yield savings
Short-term interest rates are set by the Federal Reserve and Chairman Jay Powell has announced a rate increase of .25% to 2.25%^1. One year ago it was 1.25%. Interest rates are rising. This allows banks to credit more interest to the consumer and, for the first time in a decade, you may be seeing attractive rates being offered by some banks. Here are some options:
Notes and bonds
With many varying maturities and qualities to choose from, the right mix can be a great way to hold surplus cash for the intermediate term. When you lend your money to a company or government, in turn you will receive a bond that earns interest, and your principal is guaranteed once the bond reaches maturity. Increasing interest rates can cause volatility so understanding what bonds you hold is critical. Here’s a breakdown of current rates (^2):
U.S. government 3-year note yields 2.88%
National muni (tax-free) 5-year bond yields 2.23%
Apple, Inc. 7.6 year duration bond yields 3.33%^3
SPDR Barclays Capital High Yield Bond ETF (JNK) yields 5.43%
If you don’t need this cash back, let’s say for 5-10 years, then an appropriate mix of bonds, stocks, and commodities may be appropriate. The balance between the three asset classes should reflect your tolerance for risk, volatility, and when you might need the funds back. Each asset class can also be taxed differently so it’s important to consult your tax advisor as you make your decision.
At Eureka Wealth Management, I help my client store their excess cash that’s both strategic and tax-efficient. I also help with investment planning on retirement accounts, insurance, tax & estate. Call for a free initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
^1: Financial Times, 9/27/18: “US Fed raises interest rates and remains bullish despite trade war”
^2: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
^3: https://markets.businessinsider.com/bonds/apple_incdl-notes_201717-27-bond-2027-us037833cx61