Sitting on some cash earning nearly zero?
- If during a normal month (year) more cash flow comes in than you "need" to spend, it is possible that "you are good."
- If there is month left over at the end of your money, not so much.
- You probably prefer to generate higher monthly income from your assets than is currently happening.
- At the same time, you probably don't want to lock yourself into a situation that will keep you from generating more income later - hopefully relatively soon - from hoped for better rates for savers.
- Look at the chart below. Maybe something makes sense for you.
- Maybe it makes sense to use more than one of these choices
What are some “Least Bad” Income Choices?
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ADVANTAGES
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Individual Bonds | Unit Investment Trust | Treasury Inflation Protected Securities | Fixed Deferred Annuity | FDIC Protected | Fixed Income |
Return of principle at maturity | Return of principle at maturity | Inflation protection | Typically highest protected interest rate of choices on this grid | Protection – principle & interest – from FDIC | Typically highest potential return of items on this grid |
Interest paid periodically e.g. 2X per year per bond | Interest paid periodically e.g. 2X per year per bond | Low risk – issued by US Treasure | Predictable – you know what principle you will receive at maturity and when you will receive it | Predictable – you know what principle you will receive at maturity and when you will receive it | Liquid every business day |
Liquid every business day | Small $ investment minimums | Small $ investment minimums | Predictable – you know what interest you will receive and when | Predictable – you know what interest you will receive and when | No penalty to liquidate or partially withdraw money |
Historically low risk of default | Historically low risk of default | Historically low risk of default | Protected by issuer |
| Significantly greater diversification than other items on this grid |
Capital appreciation potential |
| Capital appreciation potential |
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| Very low dollar minimums |
Might hedge stock market volatility | Might hedge stock market volatility | Might hedge stock market volatility | Might hedge stock market volatility | Might hedge stock market volatility | Might hedge stock market volatility |
Provide cash for a buying opportunity |
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Might work well during Deflation | Might work well during Deflation |
| Might work well during Deflation | Might work well during Deflation |
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DISADVANTAGES
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Individual Bonds | Unit Investment Trust | Treasury Inflation Protected Securities | Fixed Deferred Annuity | FDIC Protected | Fixed Income |
~$250,000 minimum | Liquidity only in secondary market – price fluctuates |
| Illiquidity – subject to surrender charge if redeemed before maturity | Typical risk-return tradeoff – less risk less return | Typical risk return tradeoff – more risk more return potential but not guaranteed |
Daily market price fluctuates before maturity | Principal returned automatically ongoing |
| Not protected by government | Subject to FDIC dollar limits |
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Reinvestment risk – new bonds might only be available at lower interest | Reinvestment risk |
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| Penalty-free liquidity might vary, i.e. possible early withdrawal penaltie |
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The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Advisors LLC cannot guarantee or represent that it is accurate or complete. The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. US Treasury securities are backed by the full faith and credit of the US Government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value. Bank certificate of deposits are insured by an agency of the Federal government and offer a fixed rate of return whereas both the principal and yield of investment securities will fluctuate with changes in market conditions. Although it is possible to have guaranteed income for life with a fixed annuity, there is no assurance that this income will keep up with inflation. There is a surrender charge imposed generally during the first 5 to 7 years or during the rate guarantee period. The guarantee of an annuity is backed by the claims paying ability of the issuing insurance company.
Mutual Funds and Exchange-Traded Funds are sold only by prospectus. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money.