Where to stash the cash in this economy?

[Russell]

I have $40k sitting in a less-than-3%-interest account for over a year. I don't have any debt except for the mortgage on which I'm paying almost 6%. One thought is to pay down the mortgage but I'd rather not, it provides a safe buffer in the event I have no source of income for a while and besides I prefer not to have all my eggs in one basket.

401k is maxed out, IRA is too. What am I missing? Where are you guys parking your cash these days and why?

[mommyof4]

I'm just keeping mine in my Cap One mm account, earning a whopping 2.71% interest. With your amount of money, maybe a CD ladder would be an idea? Maybe 4 CD's, 10K each, maturing at 3, 6,9, and 12 month intervals. I'd look at bankrate.com for CD rates.

[jIM_Ohio]

I like Permanent Portfolio in any market condition (PRPFX).

[Goldy1]

I hope you get more advice b/c I am in somewhat similar situation. My money is in ING cd and bank account.

[Gjowers]

I buy CDs with cash like that. I'm often torn between paying down my mortgage and socking away more in savings. The trouble with paying down your mortgage is that you can't get that money back if times get tight. In today's climate, I'd want that money somewhat available if it became necessary, so that make CDs an attractive option.

Refinancing your mortgage might be worthwhile in the near future if the predictions of 4.5 % morgage rates turn out to be true.

[Russell]

Thanks all for the suggestions.

Gjowers, that's exactly how I see it. You gotta have some liquid cash for emergencies etc. I suppose CDs is a way to go but right now they're not paying much more than the savings accounts especially short term so the hassle of moving the money around doesn't seem to be worth it right now. Would you agree?

I was thinking about buying some stocks with $10-20k since the prices are down and hopefully they'll only go up once the economy recovers. The other option was to buy another property, the interest rates are low and I can use this money for a downpayment.

[vole]

I think the accepted figure is to have enough cash for 6 month's living expenses. With things the way they are today, maybe 1 year is better.

My local banks pay almost nothing in interest so I use ING Direct and get 3%/yr rather than locking up my money with a CD for a rate that isn't much higher.

If you already have that, extra might do very well invested in equities. For that, the evidence is that index funds with low management costs outperform actively managed funds.

If you have the time it's possible to invest and pick stocks yourself. I would suggest reading the classic economic text by Benjamin Graham (who taught Warren Buffet) "The Intelligent Investor" and David Swensen "Unconventional Returns".

[tripods68]

I will be putting some cash into the Vanguard Ginnie Mae funds. It has minimum $3K investment, expense ratio .21% that is if you like asset daily fluctuation. I heard on Bob Brinker's show 2008 fund is up 7%. Otherwise, I put on laddered FDIC insured CD's.

[jIM_Ohio]

market down=invest in equities
market going up=invest in PRPFX
market getting real high=pay down mortgage
market drops=invest in PRPFX
market keeps dropping=invest in equities

You may change this... but if you have retirement accounts, than means you WANT to retire. Why not allocate 50% of new money to cash and 50% to equites (buy even valued lots of 1k or 10k for tax reasons). Go in with a return percentage (like 30%)

Buy $10,000
if it goes to $13,000 sell $3000
if it goes to $7000 buy $10,000 more
if it $13,000 goes to $16,900 (30% more) then sell $3000 again (always sell "back" to basis of $10,000).
Whatever the percent is up you need to also have that percent down for a new buy.

You have 40k cash
$10,000 buy now
if it goes up sell a portion (decide on percentage before you buy)
if it goes down buy another $10,000 lot (know the down percentage when you buy first lot).

[Russell]

Jim, that's a great strategy, thanks. Of course, the next natural question is which equities. I know I should read books and research P/E ratios and spend a good chunk of my life finding good stocks but I don't have the patience as I'm sure lots of people don't. Should I just buy the total market index funds and spiders?

[feh]

I'm with Jim. This is a great time to invest. If you're not into doing market research, buy an index fund. Actually, that's probably good advice even if you are into market research...

[Russell]

I already have the vanguard 500 index fund in my 401k so maybe some kind of ETF.

Also, is there a way to get notified when your portfolio has reached say 30% or decreased 30% as in Jim's example?

[feh]

I already have the vanguard 500 index fund in my 401k so maybe some kind of ETF.

Also, is there a way to get notified when your portfolio has reached say 30% or decreased 30% as in Jim's example?

There are plenty of free online tools that will allow you to input your holdings and then send you daily email on the current value of your portfolio. Whether there are free services that will trigger when specified thresholds are met or not, I don't know.