Short-Term Investment Vehicles

Hello folks,

With inflation running sky high, many are looking for the highest return-on-investment (ROI) options for their cash in the near term future. There are quite a few options available at the moment, but it's important to understand that most will have a rate of return below inflation. This means that while we are making money in nominal/absolute terms (number of dollars in account going up), we are still likely losing money relative to inflation (number of dollars in account going up less than inflation, relatively speaking).

You might be looking to grow your cash that you may need in the immediate future. Stock market investing, generally speaking, is not for money you'll need within the next 5 or so years.

Below, I'll highlight some of the best options that I see on the market today.

Vehicle	Estimated Rate of Return/Yield
SoFi Bank (High Yield Savings Account)	3.75%
Vanguard Federal Money Market Fund (VMFXX/VMRXX)	4.26%
1 Year US Treasury Bonds	4.72%
Series I Savings Bonds	6.89%

SoFi Bank (HYSA)

High Yield Savings Accounts (HYSA) are savings accounts that pay you high interest. A common one that I've used in the past is Ally; at the moment, SoFi is paying even more Annual Percentage Yield (APY) than Ally at 3.75%. Their checking account isn't half bad either with an APY of 2.5%.

I've been using this for about the past 6 months, and it's been great. Unlike FTX's exchange accounts, SoFi Checking and Savings accounts are FDIC insured up to $250,000 per member.

If you would like to open an account at SoFi, please consider using my referral link here. If you use this link to sign up, you’ll get a $25 bonus from me plus $250 from SoFi when you set up direct deposit, and you'll be earning 3.75% interest to boot.

Vanguard Federal Money Market Fund (VMFXX/VMRXX [alternative])

According to Vanguard, a Money Market Fund is a "a type of fixed income mutual fund that invests only in highly liquid, short-term debt. These funds offer high liquidity with a very low level of risk."

The goal of a money market fund is to provide investors with a relatively stable income stream, while preserving capital. Money market funds are considered low-risk investments, and are often used as a cash management tool for businesses or as a short-term savings option for individuals.

As you can see, even Money Market Funds aren't a horrible option for short term cash at the moment. However, it is important to note that while the current yield is 4.26%, it is subject to change every 7 days. Another downside is that it also has an expense ratio of about 10 basis points (0.10% - depending on the fund). It may be a better option to buy 1 Year US Treasury Bonds or keep your cash in a HYSA if you don't want the burden of checking in.

1 Year US Treasury Bonds

These US Treasury Bonds are an investment worth considering at this point in time due to yield curve inversion.

What is yield curve inversion?

A yield curve inversion occurs when long-term interest rates are lower than short-term interest rates. This is the opposite of the normal relationship between rates, in which long-term rates are higher than short-term rates. In other words, the yield curve is inverted or "flipped" when short-term bonds have a higher yield than long-term bonds. This phenomenon is often seen as a sign of a potential recession.

This is unusual because, in a healthy economy, long-term rates are typically higher than short-term rates to compensate investors for tying up their money for a longer period of time. When long-term rates fall below short-term rates, it's often seen as a sign that investors are worried about future economic growth, and they're more willing to accept lower returns on long-term investments as a result.

When the short-term interest rate is higher, it indicates that investors are expecting higher inflation, lower growth, and potential central bank tightening; all of these factors lead to a lower confidence in the economy. As the short-term rate rises, it leads to an inversion of the yield curve.

So, how do you buy 1 Year US Treasury Bonds?

You can do this at eTrade, Fidelity, Schwab, and other brokerages. As of the time of writing of this article, the 1 Year US Treasury rate is floating at 4.72%. As the name implies, you must have your money "invested" for a minimum of 1 year.

Series I Savings Bonds

Series I Savings Bonds are a type of savings bond issued by the US government at https://www.treasurydirect.gov/. They are similar to other savings bonds in that they are backed by the government and pay interest, but they also have an inflation adjustment feature. One of the big downsides is that the maximum allowable contribution into the Series I Savings Bond is $10,000/year. Another downside is that you are locked in for a 12 month minimum. Currently, the rate of these bonds is set at 6.89%

I wrote an in-depth article about these bonds that you can find here.

While short-term investment vehicles are great, it's important to have a strong foundation in personal finance education. How can you get all of the battle-tested, tried and true knowledge as quickly as possible? I wrote a book explaining exactly this; it's short; it's cheap, and it's written in plain English. You can find it here: https://amzn.to/32PLB3x. You may also want to consider subscribing to this blog by entering your email on the homepage next to the “Never Miss a Post” section and following the podcast “Nondelusional Investing” wherever you get your podcasts.

Is there anything you found useful or that I missed above? If so, please leave a comment in the comment box below.

See you on the next one!

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Disclaimer: The article above is an opinion and is for informational/educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. The author has taken care in writing this post but makes no expressed or implied warranty of any kind and assumes no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of this information.