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Why This May Be Today's Best Investment

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Sometimes, the best investments aren't the most exciting ones. Even if you think that stocks are where all the excitement is, ignoring the merits of more boring places to invest your money could be a huge mistake.

One of the least exciting investments out there is cash. Whether you put it in Treasury bills, a money market fund, or a plain old vanilla bank account, cash isn't going to give you a big return, especially right now. But what it will do is make sure you don't suffer any losses, leaving you with the opportunity to take advantage of more attractive investment opportunities that may arise in the future.

Stash your cash
One reason why so few people are excited about keeping cash right now is that rates are so lousy. The rate on short-term Treasury bills actually went negative recently, and even locking up your money in a six-month T-bill will get you less than 0.2% currently.

Banks are a bit better, but not a whole lot. With some work, you can find rates above 1% in a savings account -- but good luck getting much more:

Bank

Current Rate on Savings Account

American Express (NYSE: AXP  ) Bank

1.50%

Capital One (NYSE: COF  )

1.45%

Discover Financial Services (NYSE: DFS  ) Bank

1.00%

ING Direct (NYSE: ING  )

1.20%

Source: Bankrate. As of Feb. 8.

So if the returns on cash are so terrible, how could it possibly be the best investment you could make right now? Here are a few arguments in favor of the least-loved asset class.

1. Best of a bad lot.
The financial markets are in a strange place right now. Stocks have rallied for nearly a year now, but the recent pause in the upward movement pushed the Dow below 10,000 on Monday for the first time since November. Concerns about issues ranging from the federal government's attempts to restart the economy to what may happen to sovereign debt in Europe have many thinking it may be time for a correction.

Meanwhile, the typical safe haven for investors in times of trouble would be bonds. Yet some of the same troubles that are hurting stocks also apply to the bond market. Big government deficits aren't supportive to stock prices, and weakness abroad might curtail the ability of foreign entities to keep purchasing U.S. debt. Even commodities like gold and oil have lost ground recently.

With cash, you may not get a lot, but you know what you're going to get. Sometimes, even 1% is better than what you'll find elsewhere.

2. Waiting for better opportunities.
The thing about cash is that once you invest it elsewhere, it's gone. If a better place or time to invest comes afterward, then you may be out of luck -- or at best, you may have to sell out of your original investment at a lower price.

Smart investors, however, know that having cash on hand gives them more options. That's one reason why behemoth corporations like Apple (Nasdaq: AAPL  ) , Microsoft (Nasdaq: MSFT  ) , and Google (Nasdaq: GOOG  ) are hoarding so much cash right now: to set up the possibility for big moves whenever they arise. Since these companies won't have to rely on sometimes-shaky capital markets before making big moves, they have a competitive advantage over other potential bidders with weaker balance sheets.

Similarly, you may think it's smarter to hold off on investing in a particular stock right now. Waiting for better values is smarter than paying outrageous prices for a stock, especially if you're worried about future losses. Choosing not to commit your capital at the wrong time is one of the hallmarks of the best investors.

Don't blow it
Investing always involves uncertainty, and today is no exception. You can't afford to rely on cash as a long-term investment, but holding onto it temporarily in order to buy the right stocks at the right price is sometimes the smartest thing you can do. Don't let low rates deter you from making what might well be the best investment decision you can right now.

Can't wait to invest? Let Rex Moore tell you the best stocks to buy now.

Fool contributor Dan Caplinger loves seeing Ben Franklin's face on a crisp green paper rectangle. He has some cash, but doesn't own shares of the companies mentioned in this article. American Express, Discover Financial, and Microsoft are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. Nothing looks prettier in green than the Fool's disclosure policy.


Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 09, 2010, at 4:37 PM, guzzo wrote:

    Although limited to $5000.00 per year, I-bonds are a safe and liquid alternative investment to cash, and they're currently providing much better yields than cash.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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