What to do with Cash?

If there is a recurring theme that I am hearing from my clients, it is this: what do I do with short-term cash? Many have found that their money market account, savings accounts and CDs are paying little or no interest. (If you haven’t looked lately, you might be surprised to see rates on CDs at less than 0.50%). If you invest these funds in some type of long-term investment, you might be facing the prospect of inflation eroding the interest paid and the principal declining in value. The real question, therefore, is “where do I put money that I want to have liquid but get a fair interest rate without taking undue risk?” As investments go, the shorter the term of an investment--from the time you invest until you get your principal back--the lower the risk, if you buy quality! On the other hand, the shorter the term of the investment, in general, the less the interest rate your principal will earn. What I have found this year is that short-term taxable investments are paying little or no interest. This is in large measure because the Federal Reserve (Fed) target for short-term interest rates has been 0%. The Fed gets what it wants! But the Fed does not care about nor does it control the short-term interest on tax-exempt investments. What we have seen so far this year is that a good place to invest for liquidity, quality and a fair interest rate has been short-duration municipal bonds. If this sounds like something you might want to consider, give us a call and we can discuss it. Ed Mallon