Ask the Readers: Where to Stash the Cash?

by FI Fighter on April 20, 2015

in Ask the Readers

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It’s no secret that the markets are frothy right now… Stocks are at an all-time high, real estate is booming again, and there are more and more investors coming out of the woodwork seemingly everyday with money to invest. Further, interest rates are at rock bottom, so even if you wanted to sit out the remainder of this bull run, putting aside cash in a traditional savings account might not be the best move either — inflation will only continue to erode away your purchasing power…

So, we are faced with a conundrum aren’t we? Do we keep investing in the “expensive” market, or patiently wait for better opportunities, while accepting the fact that our idle cash is sitting stagnant, or worse, losing value.

Perhaps, there is a better alternative? At this time, I would like to ask readers:

“Where are you stashing the cash?”

For those who are no longer actively investing in the markets, where are you parking your excess funds as you wait for a better entry point to get back into the game?

  • Savings Account?
  • CDs?
  • Money Market?
  • Precious metals?
  • “High yielding” 0.75% APY alternatives like SmartyPig?
  • Under the matress?

In addition, is anyone still finding opportunities that you consider “low risk” even today?

  • Hard money loans (HML)/Private Lending?
  • Leding Club/Prosper?
  • Bitcoin?
  • Stocks?
  • Bonds?
  • Flips?
  • Buy and Hold properties?

In my own situation, I don’t have a ton of cash at the moment, so for now I’m just parking it in a standard savings account. Since I don’t plan on actively investing in the near future (unless the market crumbles again), I will most likely need to figure out a safe haven to stash funds while I wait for another buyer’s market to commence. And just like everyone else, I would like to earn a “decent” yield while I await for better opportunities to strike again.

Would love to hear your thoughts on this!

{ 34 comments… read them below or add one }

1 JC @ Passive-Income-Pursuit April 20, 2015 at 12:48 pm

There’s very few options right now for cash but luckily I’m not sitting on a crazy amount of cash right now. I’ll be trying to hold onto a bit more cash and most likely I’ll just be stashing it in the savings account. It’s not the best option but with cash I’m not as concerned with getting a great return. I just want liquidity and store of value.

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2 FI Fighter April 20, 2015 at 6:35 pm

JC,

Similar to you, I don’t have too much cash on hand, outside of the emergency fund right now. If it gets to be “overwhelming” I may have to find another means to store it, but I also think that a savings account is adequate. It’s really the liquidity I’m concerned with, like you mentioned.

Cheers!

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3 Dividend Growth Investor April 22, 2015 at 9:42 am

Honestly, if I had too much cash on hand and I didn’t know what to do with it, I would just put it in the bank.

Investing that cash into something you are not comfortable investing in could backfire. I think you should just learn to sit still for a few months, before you make your next major move. This would include accumulating cash – you do not have any sources of income other than your rentals, so see how this goes first. There will always be opportunities in the future.

Now, I am finding places for my cash, but then that is my cash and my investments. I cannot give you individualized investment advice 😉 But one day I might be able to charge an AUM fee if I choose to give advice 🙂

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4 Mike April 20, 2015 at 12:56 pm

I’ve been holding extra cash in the Vanguard Short Term Corp Bond ETF: VCSH
With they way rates have been and are likely going, I don’t see this ETF moving much in the next 2-3 years.

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5 FI Fighter April 20, 2015 at 6:37 pm

Mike,

Thanks for the tip. I’ll go and check out that fund. In general, I’m a huge fan of Vanguard funds, and could think of many worse places to put cash into 😉

All the best!

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6 Brian April 20, 2015 at 1:01 pm

I am about to be in this situation…have a cabin my dad left to me, but am tired of maintaining it (when we only visit maybe once a month) so am going to sell it. Will be coming into a decent amount of $, but can’t figure out what the best thing to do is…I’m leaning toward putting it all into a ETF (Vanguard Total Market) in a taxable account because what else can you do?

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7 FI Fighter April 20, 2015 at 6:41 pm

Brian,

The Vanguard Total Market fund is also one of my favorites as well. Long-term, I definitely don’t think you can go wrong with this fund.

All the best!

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8 Adam @ AdamChudy.com April 20, 2015 at 1:19 pm

I’m using a mixed strategy. My monthly 401k contributions still go in to the market. My Roth IRA contributions are in cash, and the rest is sitting in a savings account.

If your going to invest, international stocks look much more reasonably priced. I’ve continued to periodically buy VXUS (Vanguard International Fund)

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9 FI Fighter April 20, 2015 at 6:43 pm

Adam,

Great tip on the international funds; the dollar is strong right now, which could help an investor get a favorable entry point into foreign investments.

I like you diversified strategy! That way you get to keep investing,but if things take a massive turn for the worse, you’ll have plenty of funds ready for deployment!

All the best!

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10 Jerry Harrison April 20, 2015 at 1:35 pm

1. American Silver Eagles
2. Started doing a-rated loans on Lending Club
3. Going to buy a couple extra I-bonds at end of month
4. Stock up on food cleaning supplies , towels/etc for house.
5. Maintenance on vehicles.

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11 FI Fighter April 20, 2015 at 6:44 pm

Jerry,

Thanks for sharing! Seems to be a pretty safe way to play in this overheated market.

Take care!

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12 Tawcan April 20, 2015 at 3:02 pm

We stash cash in savings account but try to limit the amount of cash we hold so the money is working hard for us in the stock market.

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13 FI Fighter April 20, 2015 at 6:45 pm

Tawcan,

Another vote for the standard savings account. I hear you, most of my gains are dependent on the market, rain or shine…

Best wishes!

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14 kyith April 20, 2015 at 5:00 pm

have them around! if you do not have hard cash, you cannot snag that great furniture on a discount

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15 FI Fighter April 20, 2015 at 6:47 pm

Kyith,

Yes, and that’s missing out on all the fun! Discounted furniture is my favorite… Stocks, REOs/foreclosures/short-sales helped me get to where I am today!

All the best!

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16 Gen Y Finance Guy April 20, 2015 at 6:04 pm

I have actually been raising cash in my retirement accounts. As of last week I am sitting in 60% cash. Plus I have a ton of cash in savings and CD’s (12-month at 3% with Navy Federal Credit Union).

The risk/reward no longer looks attractive. We have had a very impressive run over the past 6 years. The trend is looking pretty parabolic. We all know that stocks do not go up in strait line (at least not for ever). Eventually gravity (reversion to the mean) will set in.

I would much rather risk under performing the last leg of this market and wait for more attractive prices than put my money in at the top and have to wait 5 years to get back to even.

I am also paying extra towards the principal on my mortgage @ 3.675%.

Cheers!

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17 FI Fighter April 20, 2015 at 6:48 pm

Gen Y,

That’s a hefty return on only a 12 month CD… Very interesting, I had no idea yields were anywhere close to being that high.

I agree with you there — the risk far outweighs the reward at this point in the market cycle. After 6+ years of solid gains, I’m content with where my investments are and am shifting focus to defense.

Paying down 3.675% in today’s low yield environment doesn’t sound too bad either!

All the best!

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18 Gen Y Finance Guy April 20, 2015 at 6:50 pm

The catch on the CD is that you can only put up to $3,000 per person. So I opened one in my name and one in my wifes name.

Cheers!

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19 joe April 21, 2015 at 11:47 am

genyfinance guy.. not counting the great depression please provide one example of a time period when it took 5 years to break even? (counting reinvested dividends on a broad market index). Hint there are none. Great depression = 6 years.. great recession = 3 years.. everything else much shorter.

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20 Gen Y Finance Guy April 21, 2015 at 11:54 am

Joe –

I guess it matters what you are invested in. But I will take your word on it. My point was I didn’t want to put my money in at the top and inevitably have to wait to get back to even. Whether its 3 years or 6 years was besides the point.

I see a better use of my capital until more favorable risk/reward exists in stocks.

I will just take your word on it, because the exact numbers don’t really matter to me.

Cheers!

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21 joe April 22, 2015 at 12:06 pm

being in it for the long haul can cure investing in a market peak.. check this out: http://awealthofcommonsense.com/worlds-worst-market-timer/

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22 Gen Y Finance Guy April 22, 2015 at 12:39 pm

Good post and illustration of what it means to be in it from the long haul. But honestly it is only one side of the coin.

How would Bob had done if instead of investing at market peaks he only invested at market valleys???

This gives me a great idea for a new post in the future.

I won’t argue the virtue of being in it for the long haul. And for most people they don’t have the patience to wait for better prices. But buying into weakness is my preferred method of deploying capital.

Unlike Bob I can only get myself to buy stocks when they are down in price. That is just the way I am wired.

For simplicity, let’s ignore dividends and say that Bob buys the absolute top that took place in October of 2007. Using the SPY ETF as a proxy for the market. Let’s say he put in $10K of new capital at the top tick of $155.88 (closing price week of 10/8/2007).

At the March 2009 bottom he would had experienced a loss of -57% ($67.10 closing low during week of 3/2/09). Today at the current price at $210.82 Bob would be up 35%.

Now let’s say GYFG (that’s me) buys on the way down. He doesn’t catch the absolute bottom but he had a plan to buy and scale into weakness. He made 4 investments of $2,500 each at the following prices:

Investment # 1 = $140.29

Investment #2 = $116.91

Investment #3 = $93.52

Investment #4 = $77.94

Weighted Average Price = $102.03

At the March 2009 bottom GYFG experienced a loss of -34% based on the same closing low of $67.10. Today GYFG is looking at a gain of 107%.

It’s not about timing the market for the absolute bottom. It’s about buying into weakness. It takes discipline and patience.

I believe that anytime you can decrease your basis you increase your probability for profit and the absolute profit.

My approach results in a gain that is 3X the size of Bob’s. They are both viable strategies. One is just more opportunistic than the other.

We know that markets will go up and that they will go down. So it’s a matter of making a rule to only buy on the way down. Going against the heard.

I don’t think there is anything wrong with your approach or Bob’s approach. But I have a slightly different approach and philosophy.

Thanks for the discussion.

Cheers!

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23 joe April 22, 2015 at 1:23 pm

that is a thoughtful response.. 2 items to consider:
1) you cannot really ignore dividends.. their value is compounded when the market is beat down b/c they are reinvesting at very low per share prices.

2) timing the market is nearly impossible to do. If you miss even the best 4 or 5 days of the year there is almost no benefit being invested the remaining days (check out the little book of common sense investing by John Bogle).

24 Gen Y Finance Guy April 22, 2015 at 1:37 pm

Ok, I will check out that book you recommended.

But I also want to do a more comprehensive analysis that takes into account reinvestment of dividends in both examples I laid out.

My gut tells me that buying into weakness still out performs.

I don’t really consider this timing the market. This is the exact strategy I deployed during the 2007-2009 financial crisis. And I only had about $10,000 at the time.

I had no idea how low the market would go. That is why I scaled in. It is the same strategy that I used earlier this year to get long the energy sector after it puked its guts out.

With that said I am not opposed to changing my view if the math proves me wrong. And I am always open to consider other view points.

So I will get the book and do the math and revert back.

Nice discussion Joe!

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25 joe April 22, 2015 at 1:47 pm

sounds good.. will check your website in the future for your post..

btw – I see very little difference to sticking with a strategy rain or shine (dollar cost averaging) and “buying in to weakness”. You could have done the same thing in 2007-2009 buy investing every pay period without having to try to call the bottom..

26 Leigh April 20, 2015 at 7:21 pm

This is why I have a plan and just execute on it without wavering 😉 I’ll invest in the stock market even when stocks are high since I have an asset allocation and a plan to stick to it. I’ll keep cash on hand when I need it, in a high-interest savings account at Ally. I’ll pay down the mortgage when I’m happy with my cash reserves, until it’s gone and then I’ll invest in a taxable account. No way to argue with the plan this way. I’ve been debating buying some more Series I Savings Bonds or CDs to replace part of the savings account balance, but I think I’ll just leave it in a savings account for now.

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27 danny April 20, 2015 at 7:33 pm

Been doing
1.Upstart/lendingclub/prosper
2. Hard money lending
3. Realtyshares/Realtymogul

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28 Roadmap2Retire April 20, 2015 at 7:51 pm

While I am not trying to change my overall strategy and yours depends on your personal situation, if I had to hazard a guess…
– Short term bond fund
– If its just a short period, savings accounts isnt a bad place
– Still looking to invest? Outside US, there are possibly better opportunities

R2R

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29 FerdiS April 20, 2015 at 10:36 pm

Lending Club delivers about 8-10% depending on the type of loans you make. The problem with Lending Club is that the funds are not exactly liquid. Its tied up in notes. You could sell the notes, but I see that as a hassle. I have a small amount of my total portfolio in Lending Club and I’m using their automated reinvestment functionality to just reinvest money that’s being paid back. Works nice enough.

If liquidity is an issue, nothing with associated terms (such as a CD or a note) would do. A savings account, then…

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30 Skydog88 April 21, 2015 at 4:01 am

Consider renting out your current home, and purchasing a new one. Take your down payment out of overvalued 401-k accounts by borrowing (a good time to take some money off the table).

That is the best strategy I have found (30+ year investor in RE) to build real estate holdings. You still get the owner/occ lower interest rate and lesser down payment.

You should be able to get 15% or more, plus nice tax benefits.

Someday we will look back on these super low financing rates and kick ourselves for not buying/financing more properties.

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31 beth April 21, 2015 at 5:59 am

I am stashing cash in my brokerage account. It is very hard to get it out of there because it is in a RRSP, Canadian registered retirement savings plan, and I would be heavily taxed if I took the money out before I retired.

I am stashing cash because I think a drop/correction is coming and I want to be able to grab some bargains when the fall happens. Who doesn’t love a good sale?

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32 Joshua Myers April 21, 2015 at 6:17 am

It’s not very liquid, but peer to peer lending is always an alternative. A diversified portfolio of 36 months high quality loans can serve the same purpose as a CD, but with a little higher return and some principle paid back along the way.

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33 The Broke Dividend Investor April 21, 2015 at 8:39 pm

I store my cash in a Capital One 360 saving account. 0.75% saving rate + accumulate monthly? There is nothing better than being safe and getting more cash.

I stored 13k in emergency money and received a little over $5/month.

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34 No Nonsense Landlord April 22, 2015 at 5:22 am

Keep some emergency finds on tap. Get a HELOC if you can, that’s emergency money you do not have to pay interest one.

Gradually put it in the market. With your risky portfolio, you might want to think about a cash account invested in some government or AAA corporate bonds.

Or pay off a mortgage and get the return of the interest.

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