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“The Ideal Location to Secure Funds for Future Stock Purchases”

by Michael Stark

Title: How to Make Your Cash Work for You Between Trades

Subheading: Where to Park Cash Between Trading for Liquidity and Income

A CNBC subscriber, Louis P., recently wrote in with the question: “Are there places to park the cash where it can make a little income and be liquid at the same time?”

To help our readers better understand where to park their cash between trades, let’s explore the options available.

Considering Money Market Funds

If you want cash on hand to buy stocks at a moment’s notice while getting some yield, money market funds are your best option. With no lock-in period, these funds allow you to access your money immediately. Moreover, these funds maintain their value while offering a higher yield than most traditional savings and checking accounts.

Money Market Funds vs. Money Market Accounts

It’s important to differentiate between money market funds and money market accounts, as they are two distinct financial products. Money market funds are low-risk investments that are not backed by the Federal Deposit Insurance Corporation (FDIC), while money market accounts come with FDIC coverage. This means money market funds can be more accessible when placing trades as they sit in your brokerage account right alongside your positions.

Evaluating Liquidity and Yield

While money market funds can provide enhanced yield on cash that’s readily available, the trade-off is that the yield isn’t locked in. These funds invest in very short-term, high-quality securities, which means the rate is constantly adjusted as holdings mature and roll off. This allows you to maintain liquidity, but also means the yield may fluctuate over time.

Considering Other Investment Options

While money market funds are a good option for parking your cash between trades, some CDs and bonds offer similar yields. However, these options may require you to sacrifice immediate access to your cash. It’s important to carefully consider and compare these options before making a decision.

Staying Informed and Seeking Professional Advice

Before making any investment decisions, it’s important to stay informed and consider seeking advice from financial professionals. By understanding how to maximize the yield and liquidity of your cash between trades, investors can effectively make their money work for them. Ultimately, your brokerage will likely have a default money market option for parking your cash, and speaking to your provider can help in understanding your cash management options.

In Conclusion

Balancing yield and liquidity is a key consideration when parking cash between trades. Money market funds offer the flexibility to access your funds immediately while also providing an enhanced yield compared to traditional savings and checking accounts. However, it’s important to carefully evaluate all available options and seek professional advice before making any investment decisions.

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