What is the best way to to hold CASH until the right investment opportunity presents itself?
We need to have cash available when the time is right. Holding time might be days or months. The three factors I would consider would be (1) Security of holding method, I want all of the money available even if the market crashes. (2) How does the brokerage company know that I really have the funds? (3) Can I get at least some interest on the money while it is there? If you always have cash available, there should be an average daily balance greater than zero in that account.
ECKELG
Answers
123 points
Engimuneer answered one year ago …
As an investor just building a portfolio, I've been using Paypal believe it or not. I keep enough for a purchase or two in my Trading Accounts, and leave the rest in my Paypal Money Market account. That cash can transfer to any of my banks or accounts within a few days. Currently earning 4.3%, but it was over 5% for the last few years.
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138 points
Bob answered one year ago …
I use E*Trade's "Complete Banking" services, and I also have a stock account with them. My bank account is tied into my regular bank's checking account, and as stated on their web site, "Easy access to your money with Quick Transfer to and from any institution", I should be able to tie into other stock brokerages if I want. I can move money from my stock account (dividend payments), and back and forth between E*Trade Bank and Wamu with a few mouse clicks, depending on who is paying the higher rate at the time. Present interest rate has dropped to 4.31% (4.4APR) but was 5.05% before Bernanke stepped in last week!
Yes, I know E*Trade is on shaky ground these days, as are many banks, but the bank accounts are covered up to $100k by the magic FDIC sticker on the window, and my stocks are mine, and should not be included as E*Trade bankruptcy assets should that become a reality.
I, too, would like to hear where others are parking money while waiting to do some bottom fishing!
1130 points
sundarkambam answered one year ago …
Link :
http://www.money-zine.com/Investing/Investing/Holding-Cash/
Generally, there are six ways for investors to hold cash including:
* Savings Accounts
* Money Market Accounts
* Money Market Funds
* Treasury Bills
* Certificates of Deposit
* Ultra-Short Bond Funds
Savings Accounts
Savings accounts typically offered by banks provide investors with arguably the lowest return or yield. With these types of accounts you have immediate access to your money and the Federal Deposit Insurance Corporation insures your money against loss. The basic insurance amount is $100,000 per depositor, per insured bank.
Money Market Accounts
This is a second type of cash account offered by banks. Once again this type of account is FDIC insured and will pay returns that are comparable to money market funds. Withdrawals and deposits (in-person) are allowed however, if check writing or third party payments are offered, the number of transactions each month will be limited.
Money Market Funds
A money market fund is a mutual fund that is required to invest in low-risk securities such as those issued by the US governments, financially stable corporations with high bond ratings, as well as bonds issued by state and local governments. These funds have relatively low risks compared to other mutual funds and pay dividends. Money market funds are not federally insured.
Treasury Bills
Treasury Bills are debt obligations of the U.S. Government. A Treasury Bill, or T Bill, is a short-term investment issued for a year or less. Treasury Bills are backed by the US Government's full faith and credit.
The US Treasury currently issues bills with the following maturities:
* 3-week bills and 26-week bills are auctioned once a week
* 4-week bills are auctioned once a week
* Cash management bills (CMBs) are used to help the Government meet its short-term borrowing needs (term is usually very short - days)
Treasury bills can be purchased either directly from Treasury or through an investment professional such as a bank or broker.
Certificates of Deposit
A certificate of deposit, or CD, is a time deposit with banks, credit unions and thrift institutions. CDs are similar to the concept of savings accounts mentioned earlier in that they are insured by the FDIC. Certificate of deposits are offered in fixed terms that span from as short a time period as three months to as long as five years.
A CD is meant to be held until maturity and the rate of interest is usually fixed, although the compounding of interest can vary. In exchange for allowing the financial institution to hold the money for a fixed period these same institutions reward the depositor with interest rates that are higher than those of savings accounts.
Ultra-Short Bond Funds
An ultra-short bond fund is a mutual fund that invests in fixed income securities that have relatively short maturity timeframes. Just like other mutual funds that invest exclusively in bonds, the ultra-short funds often invest in a wide range of securities. For example the fund might own corporate bonds, government securities, and even mortgage backed bonds.
Since ultra-short bond funds are permitted to invest in a wide range of investments, the yield on these funds is typically greater than a money market fund - which is limited to higher quality investments as described earlier. And just like other mutual funds, this money is not insured by the FDIC.
