Investors looking for safe places to store some cash amid high inflation and volatile markets have options.
Continuing with Yahoo Finance’s “What to Do in a Bear Market” series, we asked experts for some ideas on where to stop money safely.
What is the safest way to store money during a bear market?
“The key to ‘storing’ money in a bear market is to find a balance between the best return and the greatest liquidity, because if you’re involved in it for the long-term, you want to be an investor, not a ‘storage’,” said Jennifer Bellis, a private wealth advisor at Bank of America. US Wealth Management, for Yahoo Finance.
In this bear market and as a result of higher interest rates, Bellis said, “Short-term Treasuries are the clear winner when it comes to stop money.”
Treasuries are bonds issued by the US Treasury that are backed by the government.
“For this reason, it is usually considered the safest investment method, but this does not always mean the best or the smartest,” Bellis added.
“As of today, you can get a yield of over 4% on 6-month Treasuries, whereas a year ago the yield was 0.06%. Four percent may not seem huge, but the fact that it is short term makes the risk and reward a very attractive temporary solution.” .
What about bonds?
The rate of Treasury Inflation Protected Securities I is fixed semi-annually. For example, between now and the end of October, investors earn a compound interest rate of 9.62% for the first six months. I bonds must be held for at least one year. Those who sell five years ago lose a quarter of the interest.
“Purchasing restrictions are the main caveat in I bonds,” Kristen Benz, director of personal finance at Morningstar, told Yahoo Money.
There is also a limit to how much investors are allowed to buy.
“Because each taxpayer can only buy up to $10,000, plus an additional $5,000 through tax refunds, for larger investors, these purchase limits limit the interest of I bonds as an inflation hedge,” Benz added.
Are there risks to bonds?
All bonds involve risks. For example, if you buy a $1,000 5-year treasury that pays a 5% coupon, you’ll receive $50 every six months and at the end of 5 years, you’ll get your $1,000 back. The problem is, with inflation, the fixed payment of $50 becomes less valuable each year, and at the end of 5 years, the value of $1,000 is also less. While you hold your bonds, values can fluctuate, said Bellis of US Bank Wealth Management.
She also highlighted that corporate and municipal bonds generally pay much higher rates than Treasuries because they have slightly more risk.
“Municipal bonds generally pay a smaller coupon than corporations, but they can be tax deductible, so if you’re in a higher tax bracket, they often result in a better after-tax return,” she added.
What about certificate of deposit or CDs?
“CDs usually pay more than savings or money market accounts because they are issued for different terms, usually from 6 months to 5 years, and in general, the longer you hold, the more you pay, although this is not always the case,” said Peles. .
“The interest on a CD can either be paid over different time periods, usually every 6 months, or it can accrue, so at the end of the term, you can either redeem the original deposit or the original deposit plus the accrued interest,” he added.
How important is the ability to convert investments into cash quickly?
“During an economic downturn, it is not just safety that is important, but liquidity. Cash allows an individual to be flexible in the event of an unexpected job loss or to invest again in the stock market when it seems cheaper,” Ross Mayfield, investment strategy analyst at Baird, told . Yahoo Finance, CDs and other closed-end vehicles can offer higher returns, but liquidity is underestimated in tough times.
“High-quality, long-term bonds are also attractive during recessions, especially in current yields. While they may fluctuate on a rate basis as the Federal Reserve raises interest rates (as we’ve seen this year), you can hold an individual bond to maturity and reap both the interest and the principal amount.
Ines is a markets reporter covering stocks from the bottom of the New York Stock Exchange. Follow her on Twitter at Tweet embed
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for apple or Android
Follow Yahoo Finance on TwitterAnd the FacebookAnd the InstagramAnd the FlipboardAnd the LinkedInAnd the Youtube
Originally published at San Jose News Bulletin
No comments:
Post a Comment