Investing: Safe places to put cash in today's market

Bank accounts, money-markets, CDs, US Treasuries. Each offers advantages

Millions of Americans are wondering how to protect their investments amidst the meltdown of the nation's financial markets.

For the time being, cash is king. But even here, there have been concerns. Jean Boyer, a retired media executive living in Laguna Niguel, Calif., is most worried whether her money-market savings are adequately insured against losses and bank failures.

Savers such as Mrs. Boyer got some relief on Oct. 3 when President Bush signed emergency legislation that temporarily lifts FDIC insurance to $250,000. Any account that was previously insured up to $100,000, such as a bank CD or money market account, will now carry that extra coverage. It reverts to the old limit after Dec. 31, 2009. The insurance level on retirement accounts remains at $250,000.

Boyer is sitting tight on the lone stock that she owns, Gannett Inc., collecting the dividend that's still being paid and hoping for an eventual rebound. That could be a decent choice, says Joseph Birkhofer, a certified financial planner in Houston. "You don't ever want to sell into a firestorm," he advises on closing out stocks during a downturn.

For absolute safety, Mr. Birkhofer points first to bank accounts (under the FDIC limit) and then to money-market funds. There is a distinct difference between the two, however, since the latter does not carry FDIC insurance.

Money-market funds are generally extremely safe and secure. But they often consist of overnight loans among companies, and there is volatility there.

The highest yields, and highest risks, come from a corporate-tied money-market funds. "Stepping down to a government-backed money-market fund is a wiser move," says Birkhofer.

Before the FDIC stepped up its insurance levels, Birkhofer advised clients with more than $100,000 in cash to move into short-term Treasury notes and bills. These can be bought directly from the US Treasury, but the process can be cumbersome. As an alternative, mutual funds made up of these government-backed IOUs are readily available to the public and can be sold quickly.

Repayment of these Treasuries is backed by the "full faith and credit" of the US government. For security, it doesn't get any safer than that.

US Savings Bonds also carry that pledge. But Mr. Birkhofer sees them, along with government-issued TIPS – Treasury Inflation Protected Securities – more as long-term positions than an investment you can have access to now.

Current yields on Treasury debts is not great. But if safety is a concern, that factor can trump a desire for a hot return. (In the depths of the Great Depression, certain Treasuries were repaying less of the original investment. People bought them, seeing a 1 to 2 percent guaranteed loss with the government was preferable to a potential 100 percent loss in the open market).

Another tactic for investors seeking safety is to build a portfolio of bank CDs covered by the FDIC, says Rita Cheng, a certified financial planner in Bethesda, Md. She would vary their duration, buying one that matures in, say, three months, another in six months, and a third in a year. "This gives you liquidity and access [to your cash] every three to six months. This also provides interest rate diversification," says Ms. Cheng.

According to, CD shoppers can collect as much as 3.16 percent interest on a six-month certificate and 3.64 percent on the 12-month version. Money-market accounts are paying as high as 2 percent.

Ms. Cheng also sees short- to intermediate-term municipal bond funds as a viable safe option. If you're concerned about the lack of geographic diversification, consider purchasing a national municipal bond fund. Bonds in general have performed substantially better than stocks this year.

For those interested in some stocks, Cheng suggests target-date funds. These invest money based upon your theoretical retirement date, and automatically move from a portfolio laden with stocks to one with bonds as you near retirement. So someone planning to retire in 2015 would be in a target-date fund that is much more bond-laden than one for a 2030 retirement. A near-term fund could be a choice for anyone – regardless of their age – who is worried about risk, Cheng notes.

Whichever route you choose, experts advise caution and above all, diversity.

"The last thing you want to do in an environment like we are experiencing is to load up on any one asset class or type of investment, such as gold," says Cheng. "If that single asset class falters, you'll go down with it."

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