“Cash is king, cash flow is queen.”
Where to Put Money Now for Cash Flow and Liquidity
Last week in Part One, we reviewed the best and worst investments to GROW your assets—or avoid like the plague in 2019! In part two, we’ll cover where to put money in 2019 for cash flow and for savings.
To recap briefly, we also discussed the three basic needs of an investor:
- Store CASH where it can grow safely.
- GROW assets long-term.
- Create INCOME that can be reinvested or relied on for living expenses.
And we reviewed an important rule: “Save before you invest.”
What did we think about stocks, bonds, hedge funds, crypto-currencies and gold? What alternative assets were our top picks? You’ll find “Where to Put Money in 2019 (Part 1)” here.
Now, let’s look at where to invest for cash flow now.
Where to Invest for INCOME
Typical investments for cash flow have been lackluster in the low interest-rate environment. However, you do have viable options that beat living on 2% interest and Top Ramen!
BRIDGE LOANS: Our top choice for income investments.
One solution is to become a private lender for bridge loans in well-managed apartments, residential and other real estate projects. While accredited investors have the best and most varied choices for bridge loan investments, there are some options available for non-accredited investors with lump sums of $25,000 or more.
Bridge loans provide interim or mezzanine financing for real estate projects—typically from 6 months to 3 years. Being a bridge loan private lender can be an excellent choice for investors looking for immediate, steady, income without the hassles of being a landlord. And in contrast to so-called “equities,” bridge loans are backed by real-world physical assets. Returns can be in the high single digits, occasionally low double digits.
Another type of private lending that is secured by real estate and excellent for income is that of mineral rights leases. Similar to bridge loans, these leases are secured by equipment and the business making the lease. Mineral rights leases have terms of one to three years, can produce income in the high single digits, and are available to accredited investors only.
REAL ESTATE: Proceed with caution and crunch your numbers.
There are multiple signs that the housing bull market is running out of steam, particularly in hot urban markets such as Seattle where home inventory has tripled since summer. Prices and market times have slowed in many U.S. markets and new home sales have fallen dramatically—22% in one year, according to the New York Times.
The new tax plan has brought attractive tax breaks for Investing in real estate in opportunity zones, but we encourage you to proceed with caution. Only invest in cash flowing deals and definitely NOT in house flipping or speculation. Look for healthy rental markets with reasonable property prices and a strong, diverse job market.
We would recommend avoiding REITs. Rising interest rates and market conditions do not look favorable for REITs, which can be volatile.
We are not fans of most annuities—they can be expensive, ridden with rules, and not worth it! However, there is one type of annuity that can work well in a particular situation. Single premium immediate annuities (SPIAs) can provide seniors a safe, steady stream of income that can exceed the cash flow they can find elsewhere. Highest payouts are for those who are older rather than younger, individuals as opposed to couples, and men as opposed to women.
The big benefit of a SPIA is that you will acquire an income stream you cannot outlive. The downside of an annuity is that it is an irreversible step. Since payouts are age-dependent, we recommend waiting to annuitize an asset rather than seeking an annuity when you retire. For instance, the cash value in a whole life policy can be annuitized at any time, but you’re best waiting as late as possible as you’ll have more cash to annuitize AND a higher annuity payout.
Contact us to find out how much an immediate annuity might pay you.
MUTUAL FUNDS: Balanced Funds and Target Date Funds.
Neither of these options is an appropriate choice for income. Balanced funds are a conservative mixture of stocks and bonds. Since we’re recommending neither right now, blending them together doesn’t make them more attractive.
Target-date funds (TDFs) purport to provide proper asset allocation for investors up to and even beyond retirement. However, they tend to be heavy on stocks, also on bonds, especially as funds “age.” TDFs do contain cash equivalents as well, but target-date funds are much riskier than most investors realize. They cannot adjust easily to market conditions and they can contain a lot of hidden costs.
People with these types of mutual funds will do well to get OUT of them before they wish to generate income… and the sooner the better!
PEER LENDING: Still viable, but not what it used to be.
A few years ago, savvy investors willing to do a bit of research on peer lending platforms such as Lending Club and Prosper.com could earn a low-double digit return. Right now, returns are reportedly closer to mid-to high single digits.
If you are looking to diversify out of stocks and earn more than a savings account, peer lending is still an option. It is especially attractive to those who are not accredited investors or who may not have large lump sums to invest with. Learn more in this comparison of peer lending sites.
Of course, those opting for guaranteed income can consider cash options below. They won’t bring impressive rates of return, but with interest rates on the rise, things have improved.
Where to Put CASH Today?
Cash (such as savings accounts) and cash equivalents (including bank CDs, money market funds, t-bills) aren’t only for emergencies or temporary cash storage (for instance, between a home sale and a home purchase). Right now, cash is also a viable asset class and a refuge from unpredictable markets.
As the housing and stock markets show signs of stumbling, 2019 is an excellent time for to build up your cash reserves. You’ll be ready to buy assets when they go “on sale” and you’ll sleep more soundly.
To decide where to save cash, determine if you want a short-term solution or a long-term one. You might wish to save for a home down payment in a year or two, or you might have a decade or more to save for college. If you don’t yet have a well-established emergency/opportunity fund, think long-term.
To learn more about bridge loans, enter your name and email below:
BANKS and CREDIT UNIONS: Seek out higher rates of return for your short-term savings.
If you haven’t checked your interest rates at your favorite bank for awhile, you might find that they are still hovering near zero. Worse—your accounts may be slowly dwindling due to monthly maintenance fees! Right now, the most competitive internet banks and credit unions for savings accounts such as Ally, Synchrony, Alliant, and Marcus (by Goldman Sachs) are all paying 2% or better with no account minimums and no monthly maintenance fees.
Your local bank may be the most convenient place for your checking account. But don’t let your savings stagnate earning one-tenth of one percent! Open up a more competitive savings account, set up an automatic transfer and put your dollars to work. If you need your money back in a jiffy, you can use Zelle to move money in minutes with most banks—at no charge.
WHOLE LIFE INSURANCE: Ideal for long-term savings plus protection.
High cash value whole life insurance remains the best vehicle to build your family’s financial “foundation.” It provides a unique combination of steadily-growing, tax-advantaged savings, a permanent death benefit and optional living benefits (such as terminal illness and long-term care riders).
Over the long-term, internal rates of return for high cash value whole life policies typically outperform bank rates by a couple of percentage points. Right now, whole life cash value returns are currently near 4% as opposed to 1 or 2% for savings accounts. (Returns can be much higher when the death benefit is considered. We are only referring to the liquid part of the policy over a number of years.) Guarantees are extremely conservative. However, dividends—while not guaranteed—have historically been paid for the last 150 years through every war, stock market crash, and economy.
Whole life cash value grows tax-deferred within a policy (tax-free when the policy remains in force until a death benefit is paid). It can be withdrawn or borrowed against for emergencies, opportunities, and investments. Life insurance offers greater privacy than banks and can be a strategic place to save for college, as it isn’t generally counted as an asset if your child applies for financial aid.
But perhaps the greatest benefit whole life insurance offers is peace of mind. If something should happen to you, the death benefit will insure your children, grandchildren and/or spouse will have the opportunities and support you intended.
Other CASH EQUIVALENCIES:
In a recent article, “12 Ways to Prepare a Portfolio for a Bear Market,” we summarized other options for storing cash including:
- fixed rate accounts
- stable value funds
- bank CDs
- money market funds and
- Treasury bills.
Some of these options can be good for short-term savings… for instance, when you wish to move money in your IRA out of stocks for a season or while you develop a strategy for a windfall or inheritance. Just make sure you aren’t compromising ease or liquidity (for instance, locking up money in bank CDs for months or years) for the same or lower interest rate you could earn with a more flexible savings account.
Next Steps for a Prosperous 2019
2019 is a good year to focus on cash, cash equivalencies, and cash flow. (There’s actually never a bad time for cash flow!) And we recommend that people do NOT wait until retirement to practice generating an income from their assets.
If you’d like to re-position your assets for greater cash flow, we invite you to schedule a no-cost, no-obligation appointment with Kim D. H. Butler. Named one of the Top 100 Financial Advisors two years in a row by Investopedia, Kim works with clients in all 50 states. Email joej (at) partners4prosperity.com to get started. Alternatively, you can call 877-889-3981 (extension: 120) during business hours (8 to 5 central.)
Want to know more? Kim has authored or co-authored five books available on Amazon.com. For retirement options, alternatives and wisdom, we recommend Busting the Retirement Lies. If you want a better understanding of whole life insurance and why it is an excellent vehicle for storing your long-term savings, you’ll want to read Live Your Live Your Life Insurance. Both are available on Amazon.com in multiple formats (with raving reviews!)
You’ll also find many topics of interest on The Prosperity Podcast, such as this episode on creating income from assets: