Alternatives to Money Markets

08/27/2018 5:00 am EST

Focus: ETFS

Robert Powell

Editor,'s Retirement Daily

Robert Powell, editor of Retirement Daily, responds to one of his readers, who asks him for suggestions for safe and liquid options for earning more than the 1.5% money market rate for their cash savings.

The safest and most liquid include money market funds and certificates of deposit. For his part, Chris Grande, a principal with Walnut Hill Advisors, says you might consider laddering CDs, which will boost returns a bit.

For instance, 1- to 3-month CDs can pay 1.7 to 1.9%. And though it might not fit precisely your stated investment goal of liquidity, you might also consider a jumbo, 5-year CD which pays upwards of 3.39%. Other options that are liquid, though perhaps not as safe as a CD or money market fund include:

Short-term and/or short-duration bond funds such as the PIMCO Enhanced Short Maturity Active ETF (MINT), which has a SEC 30-day yield of 2.45%.

Also consider and iShares Short Treasury Bond ETF (SHV) and Voya Prime Rate Trust (PPR). Floating rate bonds also pay 2-4%. Consider iShares Floating Rate Bond (FLOT).

"And, if the market and economy slow down at all in the data, then we can feel better about yields not rising and that would allow some allocation to closed-end bond funds from PIMCO that can pay 6 to 10%," says Grande.

"Though these are a bit risky and susceptible to interest rate risk, putting 5 to 10% of assets in these things wouldn't be crazy." Some that we've written about include are PCM Fund (PCM) and the Nuveen Quality Municipal Income Fund (NAD).

Grande also says blending in annuities will also offer decent yields with a bit more lockup so a small percentage there could be a nice add on.

Using a mix of these assets can earn someone a range of 2.5% on the very conservative end to 5%+ being more aggressive.

As for investing 80% in bonds, that may or may not be too aggressive. It's really a function of whether you want to sacrifice liquidity and safety for yield or not.

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