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Your home: A perfectly terrible place to keep cash

moneylogo040411_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

An especially dangerous place to keep a lot of your cash is: at home. Not necessarily under the mattress. Just at home.

One danger is that people may forget where they hid that at-home money. Behind a wall? In a  cookie jar? Beneath a loose floorboard? Inside a copy of Aubrey’s “Brief Lives”?

Marylou Reeves, a fee-only Certified Financial Planner in Rockaway, tells of a man who died in 1974 – and, perhaps worried about the safety of banks, had hidden money all over his house. His survivors are still anxiously searching for any they never found.

Hiding money in the house, says Reeves, who specializes in advice for older people, is especially dangerous for individuals who live alone. They may not tell anyone that they are hiding money, let alone where they have hidden it. And there are other dangers to keeping money at home. A fire. Theft.

Every investment is risky, the CFP emphasized during a recent talk at Bergen Community College in Paramus, even “cash equivalents” – like a passbook savings account or a certificate of deposit. The biggest threat to cash equivalents, she pointed out, is inflation. Nobody may swipe your cash if it’s locked up in a CD, but inflation may sneakily run off with a big chunk of its value.

So, how to reduce risk? Her advice: diversification. Some of this, some of that.

If you’re putting your money into fixed income, like a CD or a bond, decide when you may need it. A few weeks? Five years? That will help you determine the maturity you should look for – the date when you want to get your money back.

Another consideration: What time period is paying generously? Actually, she said, the best time period changes all the time, although seven to ten years is often reasonable.

While the further out you go on the “yield curve,” usually the more interest you will earn, long-term bonds are hazardous to your wealth. You may need money just when interest rates have risen – meaning that your bonds will be worth less. (Nobody will pay top dollar for your [say] 5 percent bonds if interest rates in general are now 6 percent. Even if your money is in Treasuries.) Her advice: “Never put money into 30-year Treasuries.”

Which banks are paying the most these days? She suggested checking bestcashcow.com.

What about high-paying “junk” bonds? Issued by corporations in a bit of trouble? “You don’t need junk,” she counseled.

As for brokered CDs vs. traditional CDs, the main difference, she said, is that brokerage CDs may be “called” – redeemed before maturity, if interest rates have fallen from the time when you bought your CD.

Floating rate mutual funds, while still offering yields over 4 percent, have exploded in popularity, Reeves went on. Her advice: Buy only floating rate funds with more conservative holdings, and with a long track record.

U.S. Savings Bonds will go entirely electronic next year – no paper.

Right now, Series I bonds purchased on or after Nov. 1 are yielding an attractive 3.06 percent, through April. Series EE bonds are yielding 0.6 percent.

She likes I Bonds, although after Jan. 1 the most an individual can buy in any one year is only $5,000 worth.

As for bond funds, she suggests sticking with those that are short or intermediate. She likes Vanguard Short-Term Investment Grade and Dodge & Cox Income.  As for dividend-paying stocks, she suggests funds like T. Rowe Price Equity-Income and Vanguard Utility.

With regard to exchange traded funds, Reeves mentions Dow Jones Select Dividend Index, Standard & Poor’s SPDR S&P Dividend, and Vanguard High Dividend Yield Index.

As for tax-deferred annuities, Reeves tends to stay away from them -- because of surrender charges, internal expenses, and restrictions on withdrawals. Immediate annuities -- those that start paying quickly -- might make sense in a “finite number of situations … for a small amount of money.

By the way, at a public forum a few years ago Reeves was asked what kind of financial planners to avoid.

Her immortal answer: any planner who uses the term “annuities.”

To receive Warren Boroson’s column regularly, drop him a note at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

BY WARREN BOROSON  

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