Increasing the return on cash is easier now than ever


About the intelligent investor

The weekly column of ‘The Intelligent Investor’ by Jason Zweig, has been published in the Wall Street Journal for about a decade and is published exclusively in Globes. According to Zweig: “My goal is to help you distinguish between the good advice and the one that just sounds good”


About Jason Zweig

One of the senior journalists of The Wall Street Journal. Author of the book “Your Money and Your Mind: How Neuroscience Can Help You Get Rich”, and the editor of the updated version of the bestseller “The Intelligent Investor”, described by Warren Buffett as “the best investment book ever written”

After stocks — and just about every other asset — took a beating this year, even the most aggressive investors can suddenly see the value in keeping some cash liquid, safe from market volatility. And, finally, your cash can bring income that doesn’t need a microscope to see.

To do better, however, you’ll need to get your money moving. Bank accounts earned next to nothing for almost a decade and a half – and that’s still the case. While the Federal Reserve is raising interest rates, the average U.S. yield on savings and money market accounts has doubled this year to 0.14%, a level that Greg McBride, chief financial analyst at Bankrate.com, describes as “pathetic at best.”

Fortunately, increasing the return on cash is easier than ever. For most investors, the two best choices are money mutual funds and US Treasury bonds.

For years, mutual fund returns have been stuck near zero, and individual investors pulled $43 billion from them last year, according to the Investment Company Institute.

In recent months, however, these funds have finally started to generate more income. The Crane 100 index of the largest financial funds brought a return of 2.64% this week, compared to only 0.02% in February and 2.01% at the end of August.

“Update the returns on a daily basis, according to the market”

According to Harry Sitt, who runs a blog called The Finance Buff. “Instead of having to wait for online banks like Ally or Synchrony or Marcus to update their interest rates on savings accounts or cash deposits, the yields on mutual funds can be updated daily according to the market.”

Your brokerage firm may force you into its “cash sweep,” an account with a bank affiliated with the firm, which is expected to yield much lower returns — a paltry average of 0.29% as of Sept. 23, according to Crane Data.

Sweep accounts are designed to be a receptacle for interest and dividend payments from your stocks and other investments. All too often they function as a prison, locking your cash away where the money provides the poorest return.

The government offers a good return on cash

However, you should have the option to transfer your account from any sweep account to mutual funds, which offer a much higher income.

This week, more than 380 funds returned 2.5% or more, on average over the past seven days, according to Crane Data. Many of them belong to leading companies such as Fidelity Investments, Charles Schwab Vanguard.

You can make an even better deal with the American state itself. Inflation-protected bonds, known as I bonds, offer an annual return of 9.62% in the next six months to investors who buy them before the end of October. The yield for new buyers will change on November 1, depending on the last update of the interest rate level in October.

You cannot buy I bonds for more than $10,000 in one account per year, you must hold the bonds for at least a year, and if you withdraw the money in less than five years, you will have to give up three months’ interest. So they are not exactly as flexible and liquid as cash.

However, the government offers a good return on cash. The yield on three-month Treasury bonds rose more than 3.25% this year, a larger increase in nine months than in any full year on record, starting in 1981. The yield on Treasury bonds for the month is 2.6%, compared to 0.05% previously at the beginning of 2022.

You can buy T-bills (US bonds with a term of up to one year) directly from the US government at TreasuryDirect.gov, or through a brokerage firm. TreasuryDirect does not charge user fees or commissions; neither do most brokers – on H News of the Ministry of Finance.

Unlike mutual funds, Treasury bonds are backed by the faith and credit of the US government, so they are considered risk-free. The income on Treasury bonds is often excluded from tax liability at the state and local level.

“Make your own financial fund with government bonds”

“Nobody advertises treasury bonds,” says Harry Sitt. “The government has no marketing budget, and the brokers don’t make money on them. So a lot of people forget that they can be bought directly, or simply don’t know it.” Those who do know, are happy to have some income on their cash again.

“When we were kids we played Monopoly,” said Armando Arias, a Bay Area software engineer who has been buying six-month Treasury bonds twice a month since August on TreasuryDirect. Making more than 3% on his cash “reminds him of the joy of building all These hotels are in a monopoly,” he said.

“At JP Morgan Chase, I made 10 cents in interest in August – but on the treasury bonds we earned 3% (calculated for the year),” said Eric Lieber, a retired technology manager who lives in the Los Angeles area.

“You can make your own small money fund with Treasury bonds,” said Jonathan Kahn, an independent investor from New York who also buys from TreasuryDirect. “But TreasuryDirect is better and safer than a money fund, with the same utility, and better from a tax perspective State and local taxes.” Kahn sticks to Treasury bonds for a month, and automatically “rolls over” or reinvests each bond for a total period of two years.

When treasury bonds for one to seven years currently provide higher yields than bonds of at least a decade, one can be tempted to buy only short-term bonds.

Changes in interest rates are unpredictable, so Dave Calvertson, a former energy industry financial executive who lives in the Houston area, has built a ladder of the highest-yielding bonds maturing every year until 2032. “If interest rates go up, great,” he says. will go down, at least I have some guaranteed long-term returns.”

Investment tips

1. The financial funds, whose returns were stuck close to zero for years, started to generate profits in the last months

2. The yield on 3-month US Treasuries rose more than 3.25% this year, a larger nine-month increase than in any full year on record since 1981

3. Inflation-protected bonds, known as I bonds, offer an annual return of 9.62% in the next six months to investors who buy them before the end of October

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