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5 Low-Risk Ways to Invest Cash: Morningstar's Benz

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With stock market volatility hitting 30 and above on the VIX fear gauge, and many prognosticators suggesting investors look to cash or short-term liquid investments, Morningstar’s director of personal finance, Christine Benz, took a moment to review some of the liquidity options available.

In The Best Places to Park Your Short-Term Investments, Benz notes that in this environment where both stocks and bond yields are getting hammered, “there’s one small bright spot amid an overall gloomy picture: Thanks to the Fed’s campaign of rate increases, once-miserly yields on cash instruments, by no means lush, have begun to look a bit better.”

She warns, however, that there might be the tendency to over-tilt into cash (indeed, Gary Shilling has roughly 30% of his funds in cash).

“It’s a mistake to overdo cash holdings, especially with inflation as high as it is,” Benz says. But an “emergency cushion” is necessary, and for retirees, she suggests one to two years’ worth of portfolio withdrawals in liquid reserves so they “don’t have to sweat losses in [their] stock and bond portfolios or risk having to sell them when they’re down.”

Important factors to keep front of mind are yield, guarantees and liquidity, she says.

For example, some products with the highest yields also come with risk or constraints to using funds, Benz notes. For example, they might come with high minimum balances or could be tied up for a period of time.

But many cash instruments are guaranteed up to $250,000 by the Federal Deposit Insurance Corp. These include checking accounts and certificates of deposit. Others, such as money market mutual funds, are not federally guaranteed, she notes.

Given those cautions, check the gallery above for five instruments that can be liquid and provide some investment returns without the worry of today’s volatility risk.