Are you looking to earn more interest on your cash? Are you intrigued by earning a 5% interest rate or more? If you are, then keep reading because I have some great news for you.
For years, we've all grown accustomed to our cash earning fractions of a percent in interest. If you look at interest rates in 2019 and 2020, you'd be hard-pressed to find a high-yield savings account paying over 0.50% (APY). Most checking accounts and bank CDs were paying just a tenth of that, earning around 0.05% APY. With interest rates so low, an acronym attributed to the stock market was born: TINA, There Is No Alternative. The only place for an investor to have a chance of generating a positive real return was in equities, and this helped fuel the stock market rally from the Covid-19 lows in March of 2020 to the peak of the market in December of 2021.
In response to soaring inflation over that same period, the FOMC began aggressively raising interest rates. As we saw in 2022, the resulting inverted yield curve wreaked havoc on the stock market, but it has left us with the silver lining that there is an alternative to stocks that hasn't existed for years. One result of the FOMC raising rates is an inverted yield curve. There is endless literature that has been written on inverted yield curves, but the take-away today is how attractive the 3-month to 9-month rates are, shown in the table below.
||CD Rates as of 6/20/2023
An investor must no longer lock up their cash for 24, 36, or 60 months to earn a measurable yield when CD rates at a year or less are currently earning over 5.3% APY. Sounds good right? Depending on your needs, we can build a cash management strategy to put your cash to work for you. I'll briefly describe 3 different cash management strategies that may suit your specific needs.
A CD ladder involves buying at least two different duration CDs, say 3 and 6-months. Every three months, when a CD matures, we roll it out into another 6-month CD. This provides you with quarterly interest payments, and a quarterly opportunity to withdraw from the strategy. FDIC insured CDs are considered very safe, and if held to maturity, your principal investment is guaranteed.
Hi-Yield Cash Management
If you require more immediate access to your cash and do not want to be restricted to cash flow at predetermined CD maturity dates, WT Wealth Management's (WTWM's) Hi-Yield Cash Management strategy provides a diversified portfolio of fixed income ETFs tactically managed by WTWM's Investment Committee. This portfolio currently focuses on short and ultra-short duration ETFs. With an average maturity of less than 1 year, this portfolio is currently yielding over 6.3% with minimal expected price volatility. If a cash need arises, funds from the Hi-Yield Cash Management strategy can be accessed more quickly and easily than a CD.
If you're looking to add a cash-equivalent to your existing portfolio, we can recommend to you a single holding that complements your existing portfolio and meets your specific investment objectives.
Please contact me today to further discuss how we can put your cash to work for you.
We can easily setup a Schwab or TD Ameritrade account for you that is separate from your other investment accounts for this purpose. Whether for your emergency fund or extra cash sitting on the sidelines, we can discuss a cash management strategy that works for you. Finally, There Is An Alternative.
Call or email me to setup a time to discuss in more detail.
Senior Investment Advisor
- The annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest.
- A certificate of deposit (CD) is a savings product that earns interest on a lump sum for a fixed period.
- An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can.
- An FDIC insured account is a bank or thrift account covered by the Federal Deposit Insurance Corporation (FDIC), an independent federal agency responsible for safeguarding customer deposits in the event of bank failures. The maximum insurable amount in a qualified account is $250,000 per depositor, per FDIC-insured bank and per ownership category.
- The term Federal Open Market Committee (FOMC) refers to the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy in the United States by directing open market operations (OMOs). The committee is made up of 12 members, including seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents, who serve on a rotating basis.
Inverted Yield Curve
- An inverted yield curve shows that long-term interest rates are less than short-term interest rates. With an inverted yield curve, the yield decreases the farther away the maturity date is.
- Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures.
What Is APY and How Is It Calculated With ExamplesInvestopedia.com
What Is a Certificate of Deposit (CD) and What Can It Do for You?
Exchange-Traded Fund (ETF) Explanation With Pros and Cons
FDIC Insured Account Definition, Requirements, Pros/Cons
Federal Open Market Committee (FOMC): What It Is and Does
Inverted Yield Curve: Definition, What It Can Tell Investors, and Examples
Yield to Maturity (YTM): What It Is, Why It Matters, Formula
BlackRock Ultra Short-Term Bond ETF (PDF)iShares.com
Certificates of Deposit (CDs)Schwab.com