Savings and money market accounts have stopped delivering a yield worth even mentioning, and investors are wary of markets and mutual funds, as they have learned the hard way that cold, hard cash is the safest bet. Laura Mandaro for MarketWatch reports that it is still best for investors to investigate the places and funds their money is going into to ensure that they are getting safety and liquidity rather than a bad balance.
Across the board, yields are not looking very generous, and ultra-low payouts stem from the Federal Reserve’s policy of lowering interest rates to near zero and strong investor demand for government-backed investments. Here are ways to be cautious when yield shopping:
- There is no such as thing as something for nothing. The higher the yield, the more risk involved – period. Keep a close eye on how much of a money-market fund is in floating-rate paper. Basically, a high yield equals high risk.
- Look for deep pockets when parking your money. Companies that have been around for a long time and those that do not have employees bailing out of their own investments are sound. Watch out for fees, as they eat into earnings and yields.
- Time horizon and risk tolerance matter. It is better to know when you will be seeking this cash. Is it for groceries and the mortgage, or for emergency spending? Few vehicles produce principle on demand.
- Check out underlying credit quality. Funds that invest in Treasurys, or direct IOUs from the U.S. government, are considered safest and therefore carry the lowest yields. Debt issued by the government-sponsored agencies has the implicit backing of the U.S. government.
- Cash can be lost. Any yield-producing investment carries some level of risk- no matter what they say.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.