Picking Up Pennies

July 11, 2019

In investments, there’s not much more boring than cash.  Sure, it provides immense comfort when the markets go south, but in the long-term, cash is the piece of your portfolio which is basically set up to fail versus inflation.  By that measure alone, it’s exposure should be limited.

Even so, cash still plays a critical role since we all need cash.  We all spend money, earn money (even if just through interest and dividends), and it goes somewhere.  That somewhere is cash.

The world of cash has been developing the last couple decades.  Remember the days when driving from bank to bank CD shopping could actually generate some good cash flow for retirement (see chart below)?  For some, that became their entire retirement nest egg!  Then came the years post-financial crisis where we had 0% interest rates, not to mention negative interest rates overseas.  Now we have been in a market where the Federal Reserve has raised rates, and as such, cash investment opportunities have gotten more attractive.  But that attractiveness has not been shared by all.  One example is cash in your accounts.

Source: Bankrate.com, FactSet, Federal Reserve System, J.P. Morgan Asset Management


With investments, there is a “sweep” fund that holds all the cash that gets generated in your account from interest, dividends, sales, or other deposits that haven’t yet been put to work or taken out.  This sweep gives comfort because it is cash and that cash is FDIC insured, but it hasn’t kept up with rising rates.  Currently, the sweep pays less than a third of a percent.  Yet at the same time, there are some money market options, called position traded money markets, which invest in what many consider the safest assets in the world (US Government Debt like Treasury Bills) and by making a purchase of this cash, rather than letting the default sweep happen, you can squeeze out close to 2% more on cash in today’s market.

We think this makes great sense.  To emphasize this, you’ll see us starting up a little bit more trading activity as it relates to cash.  This will cause more buying and selling, however, it’s a free trade with no tax consequence other than the tax on the extra interest we can help generate for you.  After all, with investing, the little things matter.  When we see an opportunity to pick up pennies, we want to take advantage of it.  So, if you see a purchase of SNVXX or GOSXX in an account, this is picking up those pennies and putting your cash to work even more.


*Savings account is based on the national average annual percentage rate (APR) on money-market account from Bankrate.com from 2010 onward.  Prior to 2010, money market yield is based on taxable money market funds return data from the Federal Reserve. Investment account return is based on the average yield-to-worst on a 6-month U.S. Treasury over the calendar year.  Annual income is for illustrative purposes and is calculated based on the 6-month Treasury yield and money market yield on average during each year and $100,000 invested.  Past performance is not indicative of comparable future results. Guide to the Markets – U.S. Data are as of June 27, 2019


Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Future performance of any investment or wealth management strategy, including those recommended by Balasa Dinverno Foltz LLC (BDF), may not be profitable, suitable for you, prove successful or equal historical indices.  Historical indices do not reflect the deduction of transaction, custodial or investment management fees, which would diminish results.  Any historical index performance figures are for comparison purposes only and client account holdings will not directly correspond to any such data.  BDF clients must, in writing, advise BDF of personal, financial or investment objective changes and any restrictions desired on BDF’s services so that BDF may re-evaluate its previous recommendations and adjust its investment advisory services.  BDF’s current written disclosure statement discussing advisory services and fees is available for review at www.BDFLLC.com or upon request.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from BDF.