Title: Park your cash here: Tips for parking cash between trades
Source: CNBC
Date: November 26, 2023
Introduction
Club mailbag is buzzing with investor queries and doubts. Louis P. has a question regarding parking cash between trades and the option of making a little income while keeping it liquid at the same time.
Money Market Funds: The Best Option
Jim Cramer and his team suggest that for cash that needs to be available to buy stocks at a moment’s notice and earn some yield, money market funds are the best option. These funds are different from traditional bank accounts or certificates of deposit.
Comparison with Savings Accounts
While the national average rate on savings accounts is around 0.6%, the average yield of the 100 largest money market funds is 5.19%. This is an attractive option for investors looking to maximize returns while maintaining liquidity.
Money Market Funds vs. Money Market Accounts
It’s important to distinguish money market funds from money market accounts. Money market funds are low-risk investments, offering a higher yield than most savings and checking accounts.
Forbes’ Top Money Market Funds
Forbes has compiled a list of the top money market funds from the biggest brokerages in the nation, offering investors a diversified range of options to park their cash.
Constantly Adjusted Yields
Money market funds invest in very short-term, high-quality securities, which means that the yield is constantly adjusted as holdings mature and new investments are made.
Breaking the Buck
There have been rare events, such as in 2008, where money market funds were unable to provide 100% liquidity. However, overall, they are considered to be very low-risk investments.
Advice for Investors
Investors should consider their specific needs and look into various options such as CDs or bonds if locking in yield is a primary concern. Each option has its trade-offs, and investors are advised to evaluate their liquidity requirements before making a decision.
Takeaways for Investors
Money market funds are a suitable option for investors looking for some enhanced yield on cash that is readily available. Brokers typically offer money market funds as a default option for parking cash after selling shares in a stock.
Conclusion
The key takeaway for investors is that money market funds can provide the best combination of liquidity and yield for cash waiting between trades. Taking the time to understand the various options available and their respective trade-offs is crucial for making an informed decision.
In summary, the insights from Club Mailbag offer helpful guidance for investors considering how to park their cash effectively between trades.
