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Investing Corporate Cash: Benchmarking?

For the past several years, we have simply invested our cash in CD/MM securities.  As you know the interest rate is 1/2 percent point or less.  I have been looking into investing some of our cash in short-term bond funds with an annual rate of 3.5%+ but want to know what others were doing to earn higher rates on their cash. My goal is to be conservative and liquid but earn as much as possible.

Any feedback?

 

 

 

Answers

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Much less, but common. Consider a short duration, quality bond fund, or a high quality dividend paying equity portfolio focused on the "steady" payors.

Kurt Kipfer
Title: CFO Emeritus
Company: International Medical Group, Inc.
(CFO Emeritus, International Medical Group, Inc.) |

Edward,
I think many companies with excess cash have been going out further and further on the yield curve over the past 12-24 months in search of higher rates. However, I am not aware of any short-term bond funds with annual rates of 3.5%+ yields. I think you will find yourself far further out on the yield curve for that type of rate and/or our much further on the credit quality spectrum. Good luck.

Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

For most companies, the number one objective for the investment of excess cash is safety of principal. If your company does not have an investment policy already, I would suggest getting one in place. Since, as you go out on the yield curve or are able to secure higher rates, you are by definition taking more risk. You do not want to have someone later come back and second guess your investing decisions.

Also, by investing in a short duration bond fund, you are most certainly jepordizing principal to the slightest uptick in interest rates. Don't chase or be lured by higher than market yields. Keep safety, liquidity in mind first. Worry about yields after meeting the first two criteria.

Be happy you are making any interest and get used to this paradigm - it isn't going to change anytime soon (24-36 months) if you believe the Fed.

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