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  • Milad Taghehchian, CPA, CFP(R)

Where To Stack Your Cash

​Today’s post is brought to us by Phillip Christenson, a chartered financial analyst (CFA)

and financial advisor at Phillip James Financial, a fee-only financial planning company located in Maple Grove and Plymouth Minnesota. The best places to park your money in a low-interest rate environment. The sustained low interest rate environment has been a big boost to borrowers, but at the expense of savers who struggle to get more than 0.01% on their bank accounts. While interest rates have inched up recently, you’re still not getting any return on your money that’s sitting in the bank. So where do you look to keep your cash safe while still earning just a little bit more? While there’s no substitute for cold hard cash, these investments make your money work a little harder for you. Try New “Bullet” ETFs These funds have been around for a few years now but recently have been trading with enough daily volume to make them interesting. Bullet Funds are basically just bond funds that mature at a certain date. It works just like an individual bond but with the added diversification of a mutual fund or ETF. For example, you put in $1,000 in the Guggenheim Bulletshares 2016 Fund (BSCG) and at the end of 2016 you will receive your $1,000 back, collecting interest along the way. The current rate on this fund is 0.75%. I know it’s not much but here’s where it gets more interesting. You can play Professional Bond Manger and build a bond ladder portfolio by buying the 2016, 2017, and 2018 bullet funds. This way you can earn a little extra interest if you plan out your cash needs. Also, these could be better investments if you are worried about interest rate risk. Because these bond funds mature, you won’t be hurt by increasing interest rates as long as you hold to maturity. Other bond funds don’t provide this protection. Municipal Bonds for High-Net worth Savers Muni bonds can be very beneficial if you are in a high interest rate bracket. The interest earned is tax free from Federal Income Tax and State Income Tax if you purchase a bond in the state where you live. Keep in mind some bonds can be just as risky as stocks. I suggest looking into “General Obligation” bonds which means the bonds are backed by the general taxing authority rather than “revenue bonds” which are only backed by the revenues from a certain project, like a sports field for example. Also, stick with AA and AAA rated bonds as well as shorter maturities if you are trying to make this a substitute for your cash. Short-Term High Grade Bond Funds As mentioned above you can keep your cash relatively safe but still earn some interest by using short-term, high grade bonds. By using these funds like Vanguard Short Term Bond ETF (BSV) and Vanguard Short-Term Corporate Bond ETF (VCSH) you can get a little extra yield, keep your investment diversified and with relatively low risk. However, because these funds don’t mature like the Bullet Funds mentioned above there is no holding until maturity to get your money back. You need to sell to get your cash back which if interest rates are up at the time you might experience a loss. The good news is the pain doesn’t last long as the existing bond investments mature, they are replaced with new ones that pay higher yields. Go Online to Find Extra Yield If you still don’t have an online bank it’s time to get with the times. These are checking and savings accounts that are completely managed online from the account opening, funding, and transactions. Because everything is done online the banks don’t have to support them with expensive branch offices and bankers which mean they can pay you more interest in your accounts. One of the more popular account is Capital One 360 (Formerly ING Direct). The savings account yields 0.75% and the checking account goes all the way up to 0.90% depending on the balance you keep in the account. Other options could be MySavingsDirect, Ally Bank, and SFGI Direct. Some of these account pay over 1%. Unlike the other investments mentioned is actually a bank account so it’s cash. The other investments are liquid but like I said nothing beats cash for liquidity and safety. I use my online bank account in conjunction with my physical bank account, earning the extra interest but still have a brick and mortar location if I need to talk to a real person. Depending on your cash needs you may want to use a combination of these investments. Keep some cash in a physical bank for daily transactions, keep another 4 months of cash in an online bank account, and then invest the rest of your cash in some bond funds. If you need help earning a little extra yield on your cash ask your Pioneer Wealth Management Advisor or if you’re in the Twin Cities reach out to Phillip James Financial by calling 763-432-0852.

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