Where to Put Your Cash Now

[Barefootsies]

I guess 'silver' did not make the list....

Bucket 1: A Rock-Solid Emergency Fund
Everyone should have at least three months' worth of living expenses stowed away in an emergency fund, advisers say. Since you don't know when you might need the money, this cash really should be money in the bank, where it is safe.

With the Federal Deposit Insurance Corp. now covering deposits up to $250,000 per person, per bank?and other conservative investments yielding next to nothing?bank products remain the best bet for emergency funds.

Online savings accounts are offering yields up to just over 1%, according to Bankrate.com. Rewards checking accounts also offer attractive yields, typically on deposits up to about $25,000, says Greg McBride, senior financial analyst at Bankrate. Consumers have to clear some hurdles, like making a certain number of monthly debit-card transactions or using direct deposit, but "if it's a fit for your financial lifestyle, it's a slam dunk," he says.

Bucket 2: A Flexible Cash Cushion That's Safe, but Not Risk-Free
Despite their current low yields, money-market funds make sense for investors who want a pile of cash that they can move into the stock or bond market at a moment's notice. By contrast, it can take a day or two to pull a big chunk of cash from a savings account and plunk it into a brokerage account.

The price for that flexibility is rock-bottom yields, which "aren't even in the same zip code as the yields on online savings accounts," says Bankrate's Mr. McBride. Taxable money funds yield just 0.03% on average, according to fund tracker iMoneyNet, down from 1.9% in August 2008.

Since there isn't much yield in any corner of the money-fund universe, there isn't any reason to stretch for a few extra hundredths of a percentage point by taking on more risk. Your best bet is to look mainly for safety.

That means eschewing funds that promise above-average returns but hold riskier corporate debt, while focusing instead on products that invest mainly in U.S. Treasurys, such as Fidelity U.S. Treasury Money Market or Schwab U.S. Treasury Money Fund.

Bucket 3: Higher-Risk Vehicles for Money You Won't Need Right Away
People who need to keep as much as a year's worth of cash on hand should put as much as nine months' worth in cash-like investments that carry more risk but offer potentially higher returns, such as short-term bond funds, advisers say.

Typically these funds are fairly stodgy, but the financial crisis showed how risky they can be when markets crack. The ultrashort-term Schwab YieldPlus fund, for example, lost 35% in 2008 because it was too heavily invested in mortgage-backed securities. Today, even funds with high-quality holdings pose the risk of principal losses in a rising-interest-rate environment. (Bond prices fall as interest rates rise.)

The yields, however, are much juicier than those of money-market funds, averaging about 2.4% right now, according to investment research firm Morningstar Inc.

Bucket 4: Long-Term Savings
While investors shouldn't rely on retirement savings for immediate cash needs, they may find that their 401(k) menu includes an option with an attractive yield and a high degree of stability: a "stable value" fund. They can be an attractive cash-like option for savers who are getting close to retirement and want to make sure a big chunk of their holdings are fairly stable.

These funds, available only in tax-deferred savings plans such as 401(k)s, typically consist of a bond portfolio combined with bank or insurance-company "wrap" contracts. These contracts allow investors to trade in and out at a relatively stable value even as the market value of fund holdings fluctuates.

The average stable-value fund now yields around 3%, well above money-fund yields, according to Hueler Cos., which tracks the stable-value industry.

But these funds aren't risk-free. During the market slide, some funds' market value dropped substantially below their book value, and wrap providers became more reluctant to offer these contracts for the funds.

The limited availability of wrap contracts is dragging down returns for stable-value investors. The wrap fees have roughly quadrupled since 2007, to about 0.20% to 0.25%. And wrap providers, having grown more cautious since the financial crisis, are requiring shorter-term and higher-quality investments in the funds.

The wrap providers are asking for "more conservative everything," and have no tolerance for emerging-market debt, high-yield bonds, and other holdings that had previously been allowed in some funds, says Peter Chappelear, an executive director who oversees stable value funds at J.P. Morgan Chase & Co.'s asset-management unit.

FDIC-insured products also are popping up in 401(k) plans?but the benefits are less clear for investors in these plans. BB&T Corp., for example, last summer introduced a FDIC-insured deposit program for 401(k)s, but it currently yields just 0.06%.

Since 401(k)s are for long-term retirement savings, low-yielding FDIC-insured products generally don't make much sense for these plans, 401(k) experts say. And given the inertia of many 401(k) participants, the danger is that "people are going to set it and forget it: move to cash and not get back in the game," says Bankrate's Mr. McBride.

FULL ARTICLE

[cooldude7]

in my offshore account.