I'd like to get some of your knowledgeable opinions.
I hold a large amount of cash, about $600,000. I do this because, if the right opportunity arises, I may buy a new home before selling the current one, therefore not having to mess around with a mortgage and the associated fees as well as not having to move twice.
I now have $250k at Ally (max FDIC insured amount - I do not want a joint account) and the rest in MM funds at my broker, which are paying about 40 basis points. I am considering opening another account with a different online bank to get the current 1.5% interest rate. But it's a hassle - more paperwork, emails, etc.
So, the question is - what are the chances the online banks lower their interest rates for a savings accounts to something less than 1%, in which case I may not want to make the change? What other decent options might be available to me?
I also purchased a SF Bay house in 2011 for $250K and it is now worth $500K. I then rented my old house and the price of old house has also doubled. With high unemployment, chances are good that the price of real estate will be dropping. With the government printing money like crazy, inflation is a concern so having hard assets instead of paper assets is a smart move.
As far as where to put your money since CD and MM interest rates are getting low, The other option are short term treasury bonds since as VFIRX. Here are the most recent quarterly returns for the last 3 years and the annual returns from 2007 to 2016:
2020 2.70% (1st qtr)
2019 1.09%, 1.54%, 0.64%, 0.38% (1st, 2nd, 3rd, 4th qtr) 3.70% (total)
2018 -0.21%, 0.18%, 0.09%, 1.39% (1st, 2nd, 3rd, 4th qtr) 1.45% (total)
2017 0.28%, 0.21%, 0.29%, -0.39% (1st, 2nd, 3rd, 4th qtr) 0.39% (total)
2016 1.18% (total)
2015 0.55%
2014 0.82%
2013 0.00%
2012 0.79%
2011 2.36%
2010 2.76%
2009 1.54%
2008 6.76% (bear Market)
2007 8.02% (bear Market)
2006 3.93%
No negative return in 15 years with only 1 year at 0.00% return.
Note that the returns of VFIRX during the last bear market 2007 and 2008 and the 1st quarter 2020 are pretty good. This is because investors believe that treasuries are safer than equities and therefore the value of treasures tend to rise. Also note that the value of treasures include both capital return plus interest return = total return. There is some risk of interest turning negative but this risk may be offset by a higher capital return.
There is no doubt that VFIRX is a higher risk than MM and CD but that is how the system works: high interest = higher risk. low interest = lower risk.
Most smart investors (Warren Buffet) have recently increased their cash position so MM and CD are probably the best option for you since you may be buying real estate. Buying real estate in the middle of a recession or high unemployment is always a good thing.