Whether short-term, mid-term or long term, your funds require more than a cursory review of the available options. They also need to be accessible, safe, carry a fixed rate of return or be positioned for growth to combat inflation.
Accessible Emergency Funds
Money Market accounts for funds you will need in the next 1-3 years. Some on-line firms are currently paying 3-½%. Most banks will provide an overdraft line for your checking account if you also have a savings or money market account with them. Direct deposit of your Paycheck can add to each account per payroll period. Heloc for large emergencies, set up before you need it.
Safety
Safety for short term needs must have an insurance component, FDIC insured accounts are the best of the lot. Check your brokerage account to confirm that the money market account you have is FDIC insured. All are not.
Fixed Rate of Return
Additional safety of funds can be assured with CD’s or a bond ladder. Look for non-callable AAA rated bonds, as they cannot be called prior to their maturity date. A five-year ladder in a rising rate environment will provide funds that can be reinvested at a higher rate as each CD/Bond matures.
Fixed annuities at a competitive rate can provide a guaranteed return for the term stated in the contract. Annuities have many moving parts, so be cautious when committing funds. Compare 2 or more contracts and be sure to read the fine print as some “guaranteed” rates are short lived and fall to 3% or less after the initial term.
Growth Component
Growth component for longer term needs can best be met in the stock market. Whether you choose to invest in individual stocks, Mutual Funds, Bonds or Bond Funds, know your risk tolerance and your time frame. Zero coupon bonds as part of your qualified portfolio because they can also be laddered to provide a stated number of dollars at a pre-determined date. Also consider a Variable annuity. Some annuities include a high-water mark that protects the gains you have acquired on each anniversary date should the market take another tumble. Annuities use “sub-accounts” which are a subset of Mutual Funds that also invest in the stock market utilizing some of the best money managers available. You control the allocation of your funds the same as in your 401k or other investment accounts. Reallocating on an annual basis at the least will keep you in balance with your risk tolerance and position you to take advantage of the business cycle and more importantly combat inflation.
