Where to Park Cash Between Trades
Louis P. wrote to the Club Mailbag, asking where he can park the cash he is holding between trades in a way that allows it to make some income and remain liquid. This is a common question for many investors, and Jim Cramer and his team of analysts have some suggestions.
Money Market Funds: The Best Option
The response to Louis’ question suggests money market funds as the best option for parking cash between trades. In contrast to certificates of deposit (CDs), money market funds do not require a lock-in period, allowing immediate access to the funds. They offer more yield than traditional bank accounts, with an average yield of 5.19%, according to money market tracker Crane Data, compared to the national average savings account rate of 0.6%.
Money Market Funds vs. Money Market Accounts
It is important to differentiate money market funds from money market accounts. While money market funds are low-risk investments that are not backed by the FDIC, money market accounts do offer similar yields to money market funds. However, money market funds are more accessible when it comes to placing trades since they sit in a brokerage account alongside other positions.
Liquidity and Yield Considerations
While money market funds provide liquidity and enhanced yield on cash, the yield is not locked in, as it constantly adjusts based on the investments made by the funds. For those seeking to cover living costs and maintain liquidity, CDs or bonds may be better options, even though money market funds are generally considered very low-risk investments.
Brokerage Account Money Market Option
Following the advice, investors should consider setting up a money market option within their brokerage account. This can automatically deposit cash into an account yielding around 5%, less the expense ratio. It is also recommended to consult with the provider to understand cash management options.
The CNBC Investment Club also offers trade alerts and information about Jim Cramer’s trades in his charitable trust’s portfolio. While there is no guaranteed specific outcome or profit, the investment advice is valuable to subscribers.
In summary, for investors looking to park cash between trades in a way that generates income and remains liquid, money market funds are the recommended option. It is important to weigh liquidity and yield considerations and to explore options within a brokerage account to maximize the potential yield on cash.