This cash advice comes from Lyn Dippel at Financial Advantage , a wealth management firm in Columbia, Md.
Dippel’s two biggest concerns for cash investors are that inflation will outpace the cash return, and that FDIC insurance only covers $100,000 per account type so bank money market accounts and certificates of deposit are at risk when you exceed that limit.
Here’s Dippel’s asset allocation plan for an investor who is looking to park $1 million for the next year:
Put 40% in a municipal money market mutual fund. The interest is federal income tax-free, and the tax-equivalent yields are much higher than a regular money market account. Dippel uses Charles Schwab, but could also use Vanguard.
Put 20% in U.S. Treasury Inflation-Protected Securities (TIPS) TIPS pay the coupon rate, plus inflation factor. Use several short-term or medium-term issue dates.
Put in 20% fpnix This is a very conservative, actively managed short-term bond fund. The yield should outpace inflation, and the principal risk is low, although higher than T-bills.
Put 20% in a Senior Bank Note Fund such as evblx The fund pays an attractive yield, and the notes are senior to stock and bondholders. Also, principal will appreciate if interest rates rise.