Over time, I have received my share of emails from readers wondering how to deploy idle cash for which they have a short-term purpose. Here’s what reader TJ had to say on the topic:
I am in the process of having to deal with many renewing Certificates of Deposits from several institutions. My wife and I are in the process of building a home and need to have the cash available in the next 6 -12 months.
Obviously I do not want to take any undue risk with these funds, but I am seeking a larger yield than Fidelity’s Cash position of 0.70%. What is an appropriate parking spot for this cash? It is currently $500K and will ramp up to $1.2M by end of the year. Is the PCEF ETF appropriate for any of this?
I thank you for your past assistance.
Generally speaking, I am against “investing” funds that have a short-term need using a long-term investment discipline. All investment disciplines by nature are long-term to better deal with short-term market volatility.
Needing funds within 6-12 months for an important project such as a building a home requires safety first, unless you have very deep pockets. As I have recommended before, using instruments with no market risk such as CDs and money market funds are the only way to guarantee that your principal stays intact and will be available when you need it.
Income generating funds such as PCEF will bring market risk into the equation. While you may get lucky and hit a winning streak and make a decent return, it’s a bit of a gamble.
Here’s where you’re risk tolerance and overall financial situation comes into play. If you can afford to take some risk using income producing funds, and your capital is sufficient to weather out some potential losses (via rising interest rates) without jeopardizing your building project, then you could deploy a portion of your assets to funds like PCEF, BND or similar ones.
If you are asking me as an advisor if I recommend you go that route, the answer is no. Stick to what you have been doing and eliminate the stress that comes with market exposure, which will allow you to better focus on the project at hand.
Disclosure: We have invested positions in the funds mentioned above.