As you have without a doubt saw, yields on short-term income investments are very low. Nonetheless, you may have some money put aside or some discretionary cash flow that you want to put to work somewhere but NOT at an anemic interest rate or speculative higher rate of return. What to do? The answer may be to look somewhere other than the obvious. You might consider investing in saving expenses! For example:
Suppose you are carrying a credit card balance at 7% interest. In that case, a reduction of debt yields a guaranteed yield of 7%, tax-free, and way higher than any comparable investment of comparable safety and predictable return. The same applies to any other consumer debt such as car loans, education loans, etc. Even first and second mortgages that have deductible rates of return can be very attractive “investments” by accelerating the amortization by adding to scheduled payments. Any of these debt-reducing “investments” can be done as you please when you please. Elimination of debts can be surprisingly satisfying after many years of advertising and cultural influence that presumes debt is “normal.” Normal is actually what works best for you.
Are there other options? Sure. How about making strategic investments to reduce your cost of living? For example, a relatively small investment in added home insulation can reduce utility bills and possibly lengthen the life of your HVAC systems. Maybe a $3,000 investment in better insulation reduces your utility bills by just $25 per month? That’s $300 in savings per year. Worth it? It’s a 10% cash-on-cash return that is inflation-hedged and tax-free (not to mention federal or state tax incentives). Our favorite investments are usually those that immediately increase our cash flow! Any others? New energy-efficient light bulbs make a bigger difference than you might think. A well-placed shade tree(s) can significantly reduce air-conditioning bills. Can you think of more options?
All of us may want to sit down and discover some “investments” that in current circumstances will make our lives better, easier, and provide very attractive “investment” returns.
In case you're keen on adapting more about the concepts, principles, and applications that form the basis of the investment planning and asset allocation process, check out our course Principles of Financial Planning: Asset Allocation. You will gain the knowledge to deepen your ability to have an effective discussion of these issues with your clients.*