Where 11 Advisors Are Telling Clients to Park Their Cash: Advisors' Advice

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I recommend three main investments now for short-term needs:

(1) Treasury bills provide safety, as they are backed by the U.S. government. Yields are attractive now, and interest is generally free from state income tax. Treasuries maturing in one to three months pay around 1.7% to 2.5%, annualized.

(2) Inflation-protected Treasury I-bonds currently pay a whopping 9.62% interest. Rates are subject to change and there are some liquidity issues, but it’s a place to look for those willing to lock up money for at least a year.

(3) High-yield savings: Many FDIC-insured savings banks pay 1.5%-1.8%, bankrate.com shows. They typically allow some liquidity, although it's important to check the terms.

Clients should consider:

(1) When they need the money. Having too much in short-term investments may create a drag on long-term returns. Clients may be better off with a Treasury bond if they don't need the cash for at least a year.

2) The amount they're investing. If using a bank, make sure you don't surpass FDIC limits. And certain investments, such as I-bonds, may have an investing limit.

(3) Risk tolerance. Clients may boost yield by investing in short-term bonds, but there’s a higher likelihood of losing money relative to an FDIC-insured bank account or a Treasury bill.

When trends started reversing several months ago, our indicators signaled a lot of risk in the market. Client portfolios currently hold more cash and bonds than they would have at the beginning of this year.

— Zack Swad, president and wealth manager, Swad Wealth Management

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My advice has remained the same: Keep your cash/emergency fund in a boring old bank account. As rates fell to near zero in the wake of the COVID pandemic, investors were searching for yield. But any yield above the risk-free rate comes with some risk and potential for fluctuations. Keeping your emergency fund in a safe, stable account allows you to take appropriate risks in your investment portfolio.

I always recommend a minimum of three months of living expenses in a liquid emergency fund. But specific targets will vary based on job security, alternative sources of liquidity — taxable savings, home equity lines — and what each individual feels comfortable with. Liquidity and safety are paramount for an emergency fund and individuals should try to stay below FDIC limits, but this generally isn’t an issue if you are keeping only three to six months of expenses in an emergency fund.

For short-term holdings, bank savings accounts. These accounts will generally move with short-term interest rates. Regularly, once a year, compare your bank savings yields to other banks. In 2022, your bank savings account should have increased in the last six months. If not, I would recommend exploring alternatives.

— Bryan Minogue, financial advisor and founder, Kardinal Financial

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Short-term investments have a timeline of zero to five years, so, like most things in finance, it can be dependent upon the client. For the clients that have at least a one-year timeline they are willing to lock in the money, I have been recommending I-bonds. Although there is a cap on the amount you can invest, I-bonds offer very low risk and a higher return than most other low-risk investments. I-bonds do take back three months of interest if you cash out within five years; however, the math still works out to be a better return than other similar investments.

If the client anticipates needing any sudden liquidity at any point during the next few years, I recommend a high-yield savings account. The rates are just below CD rates, but you have the ability to liquidate at any time. With interest rates rising, so have these accounts.

— Nathan Mueller, financial planner and coach, BlackBird Finance

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We at JWK have always recommended that clients with a single-income household keep five to six months of monthly spend, and clients with double income keep three to four months of monthly spend in a high-yield cash savings account (Ally, Marcus) or CD. With inflation at its peak, we may want to consider taking another look at monthly expenses, since they may have increased. However, the trade-off is keeping cash readily available for emergencies for flexibility versus selling something at an inopportune time, which may hurt more than having left it in cash.

— Jennifer W. Kang, founder and financial planner, JWK Financial

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I prompt clients to consider online bank CDs and I-bonds for funds with a short-term investment horizon of one to five years and a desire for principal protection.

I-Bonds

The I-bond is the closest thing I have seen to a free lunch in this market. The caveat is that you need to hold the funds for at least one year.

Once you clear the one-year mandatory holding period, you can withdraw them at any time and still find yourself ahead. Even though early redemption triggers a three-month interest penalty, the interest rate (9.62%) is so much higher than any other safe fixed-income securities out there that you still end up ahead.

Online Bank CDs

I-bonds generally limit you to a $10,000 investment per person, per year. Online bank CDs, on the other hand, can provide $1 million in FDIC insurance per institution for a married couple.

The primary benefit of short-term savings is that certain banks provide incredibly favorable early withdrawal terms in this period of quickly rising interest rates.

This creates a unique scenario where investors can purchase longer-term CDs intending to withdraw earlier than maturity because higher interest rates make it worthwhile, even with early withdrawal penalties.

— Alex Rezzo, founder and principal, Andante Financial, an RIA firm

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For short-term cash, I recommend one of three accounts: high-yield savings, certificates of deposit or I-bonds.

Recommendations of how much cash to hold depend on the client's circumstances, and have not changed recently due to the markets. This can (be) anywhere from three to six months of living expenses or more depending on the client.

At all times, we need to assess vehicles to make sure that they have FDIC insurance, and that they are relatively liquid (if) we are going to use them for short-term purchases. The only thing that has changed in recent months is that the rates offered by savings products such as high-yield savings accounts, CDs and I-bonds are now significantly higher than in recent years, making them much more attractive.

— Erik M. Baskin, founder, financial planner, Baskin Financial Planning

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The first and most obvious place to park short-term money is in a high-yield savings account. This is where I recommend clients keep their emergency fund, their taxes if they are self-employed, and any money they will want to access within one year’s time. Average interest for August is around 1.2%-1.8% APY. They are easy to set up online, usually have a minimum balance requirement when opening, and keep the funds liquid with some restrictions on how many withdrawals you can take per month or year.

Individual municipal bonds are sometimes considered one step outside of cash. Generally tax-free federally and for the state where an investor resides, be aware of differences between general obligation and revenue bonds, their ratings, yield to maturity vs. yield-to-worst, when they’re callable and whether they are subject to AMT. Strategies to consider might be short-term bond ladders or bullets, while considering the tax-equivalent yield before committing to a municipal vs. corporate bond strategy.

Short-term corporate bond funds that trade on the market, hold low duration risk, and can be broad or sector-specific are another option. Short-term U.S. government bond funds, which can include mortgage-backed securities and Treasuries, are an even lower-risk option. Individual Treasuries, backed by the U.S. government, are one's safest bet to earn more than cash in a high-yield savings account. They include tax incentives, are highly liquid, and if AAA rated have high credit quality for ultra-low risk.

— Michael Raimondi, wealth manager, Clarus Group LLC

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Volatile markets can present buying opportunities for investors with a long-term horizon and money to invest. Systematic investing, in the form of dollar-cost averaging, can help reduce anxiety about the investment process and help you stay invested through the market downturn. If you’re concerned that the rate of inflation will eat away at your purchasing power, consider speaking with your financial advisor about investments and strategies that can help address inflation risk.

If you’re looking for more security, it is important to begin creating a good safety net in the form of emergency cash reserves. If you’re a salaried employee, we recommend keeping three to seven months’ worth of living expenses, nine to 12 if you’re self-employed or an independent contractor, in a highly liquid account such as CDs or money markets.

Market volatility can cause your portfolio to drift from your intended investment mix, making it a good time to check if it is still aligned with your goals, time horizon, financial situation and risk level. The best way to get your arms around where you stand today, and plan for what’s ahead, is to talk with a financial advisor to help you plan holistically.

— Laura Radcliff, Edward Jones financial advisor

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Our advice has remained consistent. Like many other advisors, we focus on a "three-bucket approach" as a baseline. We have our risk-free cash or short-term bucket, then there's the "opportunity bucket" or midterm bucket, and then the retirement bucket or long-term bucket.

We recommend single-income households try to maintain a minimum of six months of living expenses in risk-free cash. For dual-income households, we recommend a minimum of three months of living expenses. Anything excess is often captured in their "opportunity bucket" to take advantage of lower market prices, assuming these funds are not needed in the next 18 to 24 months.

For clients planning to buy a home, do home renovations or make a large purchase, we've been capturing their excess cash flow in high-yield savings accounts. With the Fed increasing rates, we're seeing institutions like Ally Bank, Marcus and others increase their yields on savings accounts. Their rates tend to be much higher than those of traditional banking institutions.

We're OK with emergency funds receiving little yield as long as the principal balance remains safe. Where we park our assets or funds should be driven by our goals or purpose. The emphasis in our planning is on what we can control. Focus on those areas first and the rest tends to fall in place.

During the pandemic, we found that clients who held the recommended amounts of risk-free cash and total liquidity felt the least anxiety, stress or concern about their finances.

— Michael Acosta, financial planner, Consolidated Planning Inc.

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The significant repricing in fixed-income markets, stemming from the shift in monetary policy from the Fed, has created opportunities for short-term fixed income investors. Notably, many deposit institutions, flush with cash, have been hesitant to meaningfully increase deposit rates in traditional money market funds and other cash-based deposit vehicles — a dynamic and stark contrast to a fixed-income market that for the first time in years offers attractive yields, especially on the front end of the yield curve. As a result, investors can take advantage of this relative spread by allocating a larger amount of capital from cash to low-risk, short-term fixed income instruments.

We’ve advised both our private wealth and institutional clients to revisit their current operating cash needs and carve out a bucket of liquidity for investment in higher-yielding fixed-income solutions. For risk-averse clients, many of these portfolio solutions have revolved around laddered, short-term U.S. Treasury portfolios that provide clients with significant excess yield versus cash, while providing necessary liquidity through structured short-term bond maturities.

This is a short window of opportunity created by interest rate volatility that allows clients to enhance the overall yield of their liquidity bucket without meaningfully increasing principal risk.

— Matthew Ruffalo, head of investment solutions, Clarfeld Citizens Private Wealth

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It’s been 50 years since both stocks and bonds have lost 10% or more simultaneously, and as a result most of our client conversations involve prioritizing liquidity needs, capital preservation and maximizing income. The Fed’s aggressive measures to fight inflation present an opportunity for patient investors to earn longed-for income in short-term bonds. A short-duration strategy can capitalize on the flexibility to move between investment-grade corporates, Treasuries and municipal bonds, optimizing take-home yield and relative value.

This approach to cash management allows investors to enhance portfolio yield while waiting for solid entry points into equities, and other asset classes, or as a placeholder for future expenses. Ultimately, the stability and enhanced yield offers clients peace of mind, liquidity and income to ride out these market conditions. We typically don’t recommend significant allocations to cash-like investments but in a volatile market environment, it may make sense to maintain some amount until those reserves can be allocated to higher-yielding strategies.

Each client is unique, but a market like this can present unique opportunities; we recommend having a conversation with your advisor so we can help you plan actively around your individual goals and liquidity needs.

— Thomas L. Walsh Jr., senior vice president, southwest Florida region, Chilton Trust

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