As I write, in July 2021, we are living in a strange time. We are facing extraordinary risks to our democracy in the US, risks to our health as COVID-19 variants appear, and risks to our environment as it becomes increasingly clear that the human race has delayed far too long to expect any meaningful investment to counteract climate change.
Yet, the US stock market sits at a valuation level where by any metric it is more richly valued than it has been at any point in our lifetimes (or at least in our memories). In addition, every asset imaginable, including worthless coins, property rights and going concerns without any economically viable business model can be easily bid (manipulated) to a level where it can no longer be justified by even the most ardent of CNBC cheerleaders.
In our COVID times, cash has become trash. The Federal Reserve began lowering the benchmark Fed funds on July 31, 2019 (before the virus), brought it to zero quickly when the virus hit, and seems to be willing to hold it there until 2023 while cravenly denying the existence of any inflation.
The challenge with the current scenario is that while it seems like a ridiculous time to be holding anything in cash, asset valuations are so high that they could fall dramatically at any moment as a result of things that are foreseeable (a change in Fed policy), things that are not foreseeable or nothing at all. And, we know from history that this can happen so quickly that very few will have a chance to save their assets.
Hence, I continue to say that it still seems like a good time to be protective and to keep some of your money in cash. But, true cash alternatives are very unattractive. Your broker at Morgan Stanley or Merrill Lynch is going to offer you 0.10% on brokered CD at the moment, which in addition to being a low rate is illiquid without a loss of principal.
A more attractive option – albeit still painful – is to put your money in an online savings account, as long as you stay within FDIC (or NCUA) limits. Multiple banks that are part of the most solid financial entities in the world are offering these accounts at 0.40% APY at the moment. And, the best thing about these accounts – particularly the accounts at American Express, Purepoint (MUFG) and CitizensAccess – is that you can transfer your cash back to a local bank account in order to take advantage of whatever opportunities or needs may arise in the near future. (Other well-known and solid banking entities such as Barclays or Capital One also offer 0.40% online savings accounts, but reviews on BestCashCow indicate that transfers may take a little longer and service may be a little worse). In fact, if you just take a few minutes to look at our list of the best online savings rates, you will find that there are also many banks that are willing to offer you more than 0.40% right now.
As you look out one or two years, you just do not want to find yourself in a position where you regretted not being a little more cautious. And, if you are so young that you’ve reached the end of this article without appreciating the level of uncertainty we face ahead, then you might want to seek out someone who lived through 2000-2001 or who lived through 2008-2009.