Some of the best places to put your money during tough stock market periods.
Should I move my money to a high yield savings account? Are online bank accounts the best place for my savings right now? We’re all probably thinking the same thing. With money in the stock market, I can’t help but feel sorely tested by what’s going on in the markets at the moment.
If you’re jittery about the stock market these days, we’re in the same boat. We’ve seen some of the bumpiest market sessions in recent history and I’ve got whiplash just following the benchmark index numbers like the S&P 500 (fell 4.7 percent in one week, gained it all back in one day).
I think we’re far from having to hide our money “under the mattress” just yet, but as an exercise, I’d like to canvas the various places where we can realistically keep our money during turbulent financial times.
Best Places To Keep Your Money During Stock Market Turmoil
#1 Where it is right now
What does this mean? If you’ve decided on a long-term investment strategy that includes equities, and have selected solid investments with fundamentally strong track records, then the emotionally charged stock market climate today shouldn’t sway you away from your current set up.
From my studies and personal experience, I’ve found that the wrong time to make decisions is when emotions and worry run high. As much as possible, avoid emotional decisions when it comes to money; many have the effect of hampering your progress towards achieving your long-term financial goals.
#2 In good solid mutual funds and stocks
Here’s how I look at it: if you’re going to participate in the market at all, the “safest” places for your money are in high quality stocks and funds. If you own penny stocks, smaller stocks or more aggressive funds, you’ll experience much greater volatility than the rest of the market. So it may be wise to move away from the marginal stuff and into relatively more stable equities — particularly if you hold positions that do not fit your investment profile. Also, if you’ve got the extra cash, think about buying low — wait for the market to find its footing (or form a bottom) and add money into equities.
For those looking to begin investing, you can try out a solid mutual fund company like Vanguard or T. Rowe Price, or an online broker like TradeKing or Zecco, which have extremely low transaction fees. For more details, you can read my review on the best online stock brokers for cheap stock trades.
#3 In high yield savings accounts
If you truly want to keep your cash as safe as possible, then go for FDIC insured checking or high interest savings accounts. Here are online banks that offer some of the better savings rates at this time:
- EverBank: The EverBank Yield Pledge Money Market Account offers .91% APY for the initial 3 months after account open, and .91% APY following that for up to a year; it has no fees but requires a low initial deposit of $1,500. For additional details, please visit this link.
- EverBank Checking: The EverBank Freenet Checking Account gives a nice .83% APY for the initial 3 months when you first start out, then has a tiered rate structure. Like its savings account counterpart, it doesn’t have fees but requires you to fund your new account with $1,500. For additional details, please visit this link.
- FNBO Direct: The FNBO Direct Online Savings Account currently offers 0.70% APY. You won’t pay any monthly fees on your account and no minimum balance is required. This is a good place to park your money without the extra conditions that a lot of other banks require. Here’s where you can open an account.
- Ally Bank: The Ally Bank Online Savings Account offers .89% APY (Updated 1/09/12); it has no fees and requires no minimum balance. For more information, you can get more details here.
- ING Direct: That ubiquitous orange ad you see on many financial sites is for the Electric Orange Account, which presently yields .20% to 1.10%. This account has no maintenance charges or fees, and can be opened with as little as $1 (no minimums). You’ll be able to pay bills, send paper or electronic checks, and transfer money through this account. If interested, you can sign up for this account here.
- WT Direct: The WTDirect Savings Account will now give you a 1.11% APY with some caveats: for the first 60 days, you’ll earn 1.11% on your money. But after 60 days, if your account is under $10,000, your APY will be changed to 0.50%. This just means that you need to maintain a balance of at least $10,000 to receive the 1.11% APY. Also, they have no fees and have high transfer limits.
- HSBC Advance: HSBC’s Online Savings Account will earn you 1.10% APY. They have no regular monthly or transaction fees and no minimum balance is needed to open an account, though other charges such as stop payment orders or return item fees may be incurred (which is the case for all banks anyway).
- Sallie Mae: The Sallie Mae Online Savings Account offers 1.30% APY; it’s easy to open an account here, since it has no minimum deposit required. Also, it has no fees.
- E*Trade Financial: The E*Trade Bank Complete Savings Account returns 0.40% APY, which is several times the national average for rates. Like all good accounts, it doesn’t have fees or minimums.
- Dollar Savings Direct: The Dollar Savings Account offers 1.00% APY; it has no fees but requires a minimum account balance of $1,000.
- Bank of Internet: The Bank of Internet High Yield Savings Account offers - APY, with rates up to par with those at other banks. The account has no fees and no minimum balance requirements.
#4 In other types of cash accounts
You can always open CD accounts for your cash for that measure of safety. Because your money is locked up for a bit of time in a CD account, you may want to purchase several CDs and ladder them to achieve some measure of liquidity if need be. But if you’re after pure liquidity and some relatively higher returns than regular savings accounts, then check out money market funds, which is the cash account type that I actually prefer (for the most flexibility and the least fuss). Our emergency fund is in a tax free money market fund. The downside is that there is no insurance here if our money market fund “breaks the buck” (we discuss “breaking the buck” in this article on Where To Put Your Cash).
Bonds often move in a different direction than do stocks. If you’ve got some of your cash allocated to bonds, you’re cushioning some of your portfolio’s decline. I’ve mulled over how much I should put into bonds; right now our bond allocation is sitting at around 7% of our portfolio when it should really be more around 10%. Small though it may be, our bond allocation has helped dull the pain of the equity slump.
#6 Diversifiers and hedging vehicles
I’ve harped on this quite often: I’d like to add more diversifiers to our portfolio. These are the asset classes that help hedge our holdings and help add further stock market diversification. If you’ve got an equity-heavy portfolio, you may want to lighten it up a little by placing a portion of your cash into REITs, precious metals or commodities.
#7 Some annuity products
This is something new we’ve been investigating recently. I know that annuities are well disliked by the financial community but some of your money may find shelter in these insurance products during turbulent economic periods. Annuities have a less than favorable reputation for being so costly and inflexible. However, there are some fairly decent products out there offered by insurance companies these days and they don’t seem all that bad. I’ll talk about this more at a later time (along with a new investment concept I came across: the S & P collar index), but the gist of this is that there are products that allow you to participate in the gains of the stock market while preventing you from loss of principal. All with some built-in costs and loss of liquidity (which is why, contrary to conventional financial wisdom, it may actually make sense to apply this to a retirement account). Okay, smear away!
I just want to emphasize that I’m not a financial professional so please don’t take my musings here as any kind of directive. As a regular investor, I am always interested in sharing and gathering information about how best to weather investment periods like what we’ve been experiencing so far, and I hope this article is one way to elicit information, discussion and ideas from others.
That said, the time to think about keeping your money safe is not when the stock market is dancing around like a drunken sailor. Now isn’t the time to seek refuge for your money, unless you’re desiring to escape from some questionable investments. Realize that by the time you feel like you should do something drastic — maybe sell out of your positions — it may already be too late. Reacting with emotions to the stock market is hardly ever the right move. If you’re in good investments that are unfortunately affected by the general mood of the market, then it’s best to wait things out. But if you decide (or belatedly discover) that certain investments are just not a fundamental fit in your portfolio, then you may want to cut your losses and consider this an expensive lesson.
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