Given most brokers give very little interest if kept in their accounts, what is the best place to keep cash?
Low duration US treasuries are the safest bet next to cash, but I think the bigger question you should ask yourself is - why am I holding cash and why am I trying to reach for yield?
If you are holding cash for the optionality so you can pick up good companies at lower prices, then what does it matter if you don’t squeeze every point of yield out of it? Yield is provided in exchange for the assumption of risk, if you aren’t keen on the possibility of capital impairment, then cash is your best bet
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If you are holding cash for the optionality so you can pick up good companies at lower prices, then what does it matter if you don’t squeeze every point of yield out of it? Yield is provided in exchange for the assumption of risk, if you aren’t keen on the possibility of capital impairment, then cash is your best bet
Totally agree!
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Yield is not necessarily ‘provided in exchange for the assumption of risk’. If you hold a highly-reputable sovereign short-dated bond to maturity, you will get the yield. That is precisely why the much more risky blue-chips which replaced this safe yield over the last few years (PEP, MCD etc.) are now being sold off; the boomers are returning to bonds as the yield rises to meet them.
The original question is a very good one and should not be disparaged, simply asking how to reduce the price of an insurance policy; one I too seek to answer as best I can all the time. Who knows what the questioners capital is, or what his % in cash is? To get the opportunity-cost, assume you are one W. E. Buffett. Are you going to pay no attention to what Berkshire earns on its on cash? Try multiplying that by 2%!
Plenty of banks and brokers are paying 1.5-1.6% for overnight cash deposits/Prime MMFs [make sure you know the slight risk of the latter].
Not disparaging the question, just trying to get him to realize that yield isn’t free and that cash serves a very specific purpose that income providing assets do not cover. “Highly reputable soverign short dated bonds” have default risk, and if you are holding it to maturity it’s not a cash equivalent, if you are wanting to treat it as a cash equivalent, then you are exposed to interest rate risk. Just because risks aren’t likely does not mean they don’t exist. Buffett himself specifically has talked about reaching for yield in many occasions, and the specific purpose of holding cash
I also don’t think your descriptions of blue chips as risky and soverign bonds as highly-reputable is accurate (not that I’m invested in either asset class - think majority of the investors on this board have most of their capital tied up in other types of companies). Which country has short term bonds paying out close to 3% (in PEP’s case) and is less risky than Pepsi?
Anyways, last post from me on this topic - see it as OT for this board
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While you’re waiting around for some action, park your monies such as AGNC that pays a nice dividend check monthly.
http://www.dividend.com/dividend-stocks/financial/mortgage-i…
http://www.dividend.com/dividend-stocks/financial/mortgage-i…
Just a thought,
Quillnpenn - a poor church mouse scratching for a living as a Retail Trader.
--------------- Vision - Multi-Millionaire…Goal - earn 1% compound Monthly.
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What is the best cash equivalent in the market?
Cash! 
Brokers offer automatic sweeps into money market funds which earns you some interest but it clutters up the monthly statements so badly that it becomes a real headache for me so I don’t use it.
I believe that the freedom to jump in and out of positions is worth more than a little bit of interest. So cash it is.
Denny Schlesinger
I sort of agree that with global debt 3.5 X global GDP you can make a case for even US Treasuries being risky, but if it really comes to the US defaulting on its debt, the game’s up and it’s time for the cave and the cans and the quadbike!
Apologies, I should not have said ‘short-dated’; it is the 10-year which is approaching 3%. You correctly highlight the risk of inflation and a much lower, or negative, real return.
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I just checked money market yields, and they’re now close to 1.5%.
If you buy a stock that pays a monthly or quarterly dividend, you don’t get the dividend if you sell before the ex-dividend date. I don;t know if you have to wait until the day after to sell it, and I don’t know what the new 2-day settlement rule does to this (as opposed to the old 3-day settlement).
The other option might be a mutual fund with a stable share price that pays a prorated dividend based on how long you hold it. I do that with a municipal bond fund that’s paid a pretty steady 4% for a long time, and isn’t very volatile because it holds bonds with a short duration. It’s not a perfect cash equivalent if you want to get out often and whenever you want.
I remember when bank interest slowly went from 3% up to 5 1/4%. Then came the high-inflation era and double-digit money market/CD/mortgage rates. I never expected to see the interest rate climate like we have now, with even negative interest rates in some countries.