Things To Do With Cash When There Are Too Many Unknowns
Coronavirus-fueled uncertainty has swept the globe, leading to higher levels of volatility and chaos in the stock market.
If you have money in an IRA (or Roth IRA or 401 K) account, you probably know that there is a penalty for withdrawing it before a certain age. Additionally, if you actively manage the money in your IRA account, things have gotten a lot murkier in the past few weeks. It may not be clear where to allocate the money inside your IRA.
Banks offer their own CDs (FDIC-guaranteed) and money market accounts (not guaranteed), but once again, the money inside an IRA account is basically marooned – you can’t withdraw it to re-invest in bank CDs without the hefty withdrawal penalty.
I discovered there are actually ETFs (exchange-traded funds) that simulate money markets. The symbol MINT is one of them. There are others, and certainly do your own research. Broadly speaking, MINT basically ticks up a penny every day. It’s a tiny increase, with a tiny amount of volatility, but it’s extremely reliable (although not guaranteed), and it beats having cash sitting in your IRA account doing nothing.
Below is a snapshot of what the MINT fund currently invests in.
As you can see, there’s a mix of government bonds, private bonds, and bonds from overseas. Again, it’s basically a money market adapted into a tradable security that, for example, you can purchase inside your IRA account.
(In the days when individual trades cost $5+, this whole idea might never have made sense. Luckily, many of the big brokers have waived trading fees.)
Finally, I almost didn’t even post this because private bonds and foreign bonds are definitely susceptible to “black swan” type crises – like a pandemic! For example, let’s imagine Royal Caribbean issued a private bond and today the MINT fund foolishly purchased it, and then you purchased some shares of MINT. Let’s say COVID-19 leads to people not going on cruises, which leads to Royal Caribbean defaulting on its bond. That means MINT will not pay off its projected profits, and in a worst case scenario you could end up losing money. (And standard money market accounts provided by banks would, likewise, tend to have the same problem.)
So again, certainly do your own research.