So you’ve got some cash socked away for a rainy day. Where can you park it to get the best return?
Rainy Day Funds
According to a Wall Street Journal article from 3/9/2012, not at the bank. The national average return for a 4-year CD is 0.89%. Ouch! The article states that I-Bonds issued by the U.S. Treasury should at least keep pace with inflation.
These low yields are acceptable in exchange for liquidity or the ability to access your funds quickly. If this is your “Emergency Fund” (3-6 months of living expenses) or if you are in retirement and need more liquidity, it is acceptable to trade returns for the ability to access cash.
However, having CD’s or low yielding bonds as a part of a wealth building strategy is a risky proposition. Many investors chose to have a CD ladder. But maturing CD’s will have to be replaced with CD’s with a much lower rate of return.
Money market accounts are also returning a paltry 0.23% according to the WSJ.
In my article The Hidden Tax on Savers, I laid out how government policy is “taxing” investors using CD’s and Money Market accounts. Low interest rates are a means to “re-inflate” the balance sheets of the large banks.
If you are trying to accumulate wealth or build up your retirement portfolio, choosing an investment that is returning less than the rate of inflation is a losing proposition. If you are paddling up-stream at the same rate as the water is flowing down stream, you won’t make any progress. If inflation is higher than your rate of return, you are not making progress, but actually going backwards.
Alternatives Return Sources
You should seek an alternative investment that generally keeps pace with inflation. You don’t want to have to pay fees to store or hold the investment safely. It would also be a huge benefit if your investment offered tax advantages.
Hmm… Tax advantages, cash flow, and generally keeps pace with inflation. Real estate seems to fit that bill.
Contact me today to see if we can put together a strategy to beef up your retirement accumulation and returns at (925) 385-8798.
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