Put Your Excess Cash to Work for You

By Brian Therien June 29, 2018

Man on laptop computer

Have you been holding on to your cash, waiting out the low interest rate environment? If so, you may have some excess cash that you can put to work toward your important long-term goals.

The recent rise in interest rates may provide an opportunity for this excess cash. The Federal Reserve has hiked short-term rates, but intermediate- and long-term rates haven’t risen as much. In fact, the difference between short- and long-term rates is relatively small, historically speaking, which makes short-term fixed-income investments (those with maturities of up to five years) more attractive. Whether they’re individual bonds or CDs, we recommend short-term fixed-income investments represent 30% to 40% of your overall fixed-income investments.

Short-term Interest Rates Are Rising
Short-term Interest Rates Are Rising chart

Source: Bloomberg Barclays U.S. Corporate Bond 1-5 year Index yield-to-worst (YTW), Bloomberg Barclays U.S. Municipal 1-4 year Index YTW. As of May 2018. Commissions/markups may reduce yields.

In addition to providing more income, short-term fixed-income investments generally decline in value less than long-term bonds when rates rise. This can help reduce the impact of rising rates on your portfolio. And as these investments mature over the next few years, they can provide cash flow that could help protect you from selling stocks at potentially lower prices if the market declines.

Your financial advisor can partner with you to review your entire financial situation and help you develop a strategy to put any excess cash to work for you.

Important Information:

Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.

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