How to park your cash efficiently

Where do you keep money you haven’t invested?

For many of us, it is spread out in a checking account or in some type of savings account. You may have hoarded more cash in these accounts over the past months, as the market volatility shook some of us out of the equity markets and into full-on “savings” mode.

But these accounts are generally unlikely to provide you with much income or keep pace with inflation, and can actually cost you in missed opportunities. If you’re holding above and beyond what you really need to hold in cash, but diving into a long-term equity investment doesn’t make sense either, you still have options.

Depending on your spending needs, some types of fixed income could potentially be a good investment, adding a steady – albeit low – income stream, plus a way to better organize your cash. But to identify where exactly you can park those dollars it can help to think through separate time horizons. Here’s how.

Day-to-day balances: 0–9 months

Your basic everyday expenses go here. The money that you keep in this bucket should be available to you same-day at all times. The objective here is pretty straightforward for most of us: have enough cash to cover our day-to-day spending, plus leave some cushion for unexpected charges, like a well-planned staycation or a crack in your roof.

Reserve balances: 9–18 months

This bucket can be reserved for cash that you have the time and risk tolerance to invest, but haven’t yet found the right fit. Or perhaps you are waiting out stock market volatility or are planning on a major purchase. This doesn’t mean your money can’t work for you in the meantime.

The money you park in this bucket should still be available relatively easily, but compared to the previous bucket, you can afford to direct it toward longer-term options. 

Some treasuries, fixed income instruments and exchange-traded funds (ETFs) could also fit in this bucket if you are comfortable with the risks associated with those investments. Given the time horizon, it might make sense to pick managers with meaningful track records and a history of managing assets successfully, especially through volatile markets. Of course, past performance doesn’t guarantee future results, but with the vast universe of available options here, be sure to do your research to narrow down your options. You may also want to consult an advisor before making a decision.

Investable assets: 18 months and beyond

We are getting to longer-term planning territory here. This is the bucket where you can consider taking additional risk to potentially earn more.

Perhaps your child is starting college in a few years, or you are nearing retirement. You may want to consider a combination of fixed income and equities, depending on your risk tolerance. Putting your money into a separately-managed account may also fit your needs. Given the longer time horizon, consider connecting with an advisor to help you think through an approach that meets your objectives.

Keeping our eyes on the prize by sticking to our long-term goals is still critical. But it doesn’t mean your money can’t do some work in the meantime. See if your three time buckets offer any pockets of opportunity, or talk to an advisor to figure out what makes the most sense for you. 

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