On August 1, Fidelity took direct aim at index fund competitors Vanguard, Blackrock’s iShares ...
Getting More Bang for Your Cash
04/27/2009 1:00 pm EST
Doug Fabian, editor of Making Money Alert, has an alternative for investors too chicken to get into the market or who are just looking for a better return on their cash holdings.
Despite the recent strength in stocks—and the possibility of a continued hope rally—I think the market is still confronting a host of nasty negatives. In fact, I think the US economy still has a long way to go before it rights the ship of rampant debt creation, surging unemployment and contracting consumer spending. Then there is the real estate market, which continues its rapid deleveraging—both on the housing front, and the commercial front.
I fear that this massive debt crater our leaders are digging the country into will have significant consequences for the economy and the stock market in the years ahead. These consequences won't be positive for the bulls, and it's another reason why I advocate approaching this market with extreme caution.
I think it is very important for you to remember that our economy is still in the midst of the greatest storm since the 1930s. History shows us that troubling economic times don't follow a path straight down. As we've seen, strong bear markets are replete with so-called "fits and starts," occasions where stock prices re-test their lows before moving upward. This latest rally is one of those starts, but I suspect the market will be back to having fits sooner rather than later.
I know a lot of readers are committed to having a high cash position during this bear market. So, it's no surprise to me that lately I've received a lot of questions regarding cash alternatives. Many of you are understandably not content with the very low rate of return being paid by today's money market funds.
And while I feel that the money market is the safest, most liquid place to park your serious money during this time of market flux, I do think there are several safe alternatives to your run-of-the-mill money market fund.
One of my favorite money market alternatives is the iShares Barclays 1-3 Year Treasury Bond (NYSEArca: SHY). This investment seeks results that correspond generally to the price and yield performance of the short-term sector of the US Treasury market as defined by the Barclays Capital 1-3 Year US Treasury index.
This short-term Treasury bond fund is a good place to park cash. In fact, we have a 25% allocation to this fund. This fund has served us well during the past year, and I suspect it will continue doing so in the year ahead.
The current yield on SHY is 2.05%, so if you are looking for a good place to get a little more yield than your money market account, check out SHY. (It closed below $84 Friday—Editor.)
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