Amid tough stock and bond markets and high inflation, 2022 has also brought investors the opportunity to find higher yields on cash and related instruments thanks to Federal Reserve’s moves to raise interest rates.
This is likely a good time to advise clients on where they can look to capture higher returns in short-term investments and bank products.
As Christine Benz, Morningstar’s director of personal finance, noted in a recent column, exactly where clients decide to store cash depends on their own circumstances and preferences. They should consider their needs for liquidity and safety, such as the guarantees offered in FDIC-insured bank accounts, as well as yields.
She cautioned against overdoing cash holdings, which inflation can erode even with high yields.
But Benz also noted that people should have emergency funds amounting to at least three to six months in living expenses, and suggested retirees keep in liquid reserves the amount of portfolio withdrawals they’d need over a year or two.
ThinkAdvisor surveyed financial advisors to share their thoughts and advice on places clients should look for short-term investments. We asked the following questions:
- Given today’s volatile markets, what advice are you giving clients regarding where to park short-term investments, including cash instruments?
- How much cash are you advising they hold now, what factors should they consider (i.e. liquidity, FDIC, safety, yields, etc.) and has this advice changed at all lately?
- What are the key places you recommend for short-term holdings?
Read their responses in the gallery above.