Accredited investors are always on the lookout for new investment opportunities to amplify their portfolios—and if it adds the diversification factor to it, even better. With their near-zero interest rates, traditional bank accounts tend to fall short of providing substantial growth for idle cash. For this matter, cash alternatives are a great option.
Also known as cash equivalents, these financial instruments offer better returns than standard checking or savings accounts while usually maintaining a high or medium level of liquidity and security.
These instruments can include treasury bills, high-yield savings accounts, certificates of deposit, money market funds, and more. They offer a wide range of options to suit varying risk tolerances and investment goals, making them a valuable consideration for savvy investors.
In this blog, we will clarify any questions about cash alternatives and provide examples and practical options so that you can choose the right one for your financial needs.
Whether you’re looking to park your cash temporarily or seeking long-term growth, understanding cash alternatives and overall alternative investments will help you make better and more informed decisions.
What Are Cash Alternatives?
After probably the lowest interest rates seen since the 1960s, the 2010s and early 2020s, were a nightmare for people saving cash in bank accounts. Traditional savings accounts offer very low interest rates, which may not keep pace with inflation. As a result, individuals are looking for better options to grow their money without taking excessive risks, and cash alternatives are a great way of achieving this. The question is: what are cash alternatives?
With time, the purchasing power of the money that has been parked starts to decrease. Still, many people choose to save cash to have the possibility of quickly accessing it, thinking of short and intermediate-term goals.
Keeping a portion of your money in liquid, easily accessible accounts can help you make significant purchases in the near future, have your cash handy for emergencies, or meet financial needs during market downturns or economic uncertainty.
In this transition from traditionally saving your money in the bank without generating any returns, cash alternatives can be very valuable if you seek low-risk returns and quick access to funds.
Let’s see what are some of the most common cash alternatives that exist:
- High-yield cash accounts: These types of investment accounts are excellent options for those looking to earn more on their savings without sacrificing liquidity or security. They offer higher cash returns without fees or lock-up periods, making your money grow faster as it sits in your account. They offer FDIC insurance, ensuring your money is protected up to the standard insurance amount.
- Money market mutual funds: These serve as another alternative to traditional savings accounts, providing higher yields and maintaining a stable value. They maintain a stable value of $1 per share, offering safety and predictability. Unlike money market accounts offered by banks, these funds must be bought through major investment brokerages. They offer high liquidity and low risk, making them a smart place to park cash for future investments. However, interest rates fluctuate with market changes, so transferring cash out when needed for other investments is important. Furthermore, money market mutual funds are not insured by the FDIC, and there have been rare instances where funds have “broken the buck” (fallen below $1 per share).
- Treasury inflation-protected securities: TIPS are designed to help protect your investment from inflation. The interest rate is set at the time of purchase and doesn’t change, although the principal value adjusts based on inflation rates. At maturity, you receive the higher of the original or inflation-adjusted principal. You can buy TIPS directly from the government or through brokerage accounts.
- Treasury Bills: Also known as T-Bills, they are short-term government securities known for their safety and higher yields compared to traditional savings accounts. They are backed by the U.S. government, meaning they offer high security. They come in various maturities, ranging from a few days to 52 weeks, allowing for flexible investment durations. A common strategy is to regularly purchase new issues to take advantage of rising rates, and an example of an excellent short-term investment can be a 6-month T-Bill. You can buy T-Bills directly from the government or through major investment firms.
- Short-term bonds or bond funds: Short-term bonds and bond funds offer higher yields than bank savings accounts but come with some principal risk. Unlike the guaranteed principal in savings accounts, the value of these bonds can fluctuate based on market interest rates. Holding individual bonds until maturity ensures the return of the initial investment plus any interest payments, while bond funds offer higher yields but with potential price declines if interest rates rise.
- Certificates of Deposit (CDs): CDs are offered by banks and financial brokerage firms. They provide higher interest rates in exchange for keeping your money invested for a specific period, ranging from 3 months to 5 years. The longer the investment, the higher the return. Although, you should know that CDs may incur penalties for early withdrawal, reducing liquidity. Here’s a pro tip–as a laddering strategy, staggering maturity dates allow you to benefit from higher interest rates over time while maintaining some liquidity.
Exploring and understanding cash alternatives can help you find options that align with your financial goals, risk tolerance, and, most importantly, your need for liquidity. Each option offers a unique balance of yield, security, and accessibility, providing effective ways to grow and protect savings in today’s economic environment.
If you are looking for investment opportunities that will allow you to access your money easily, cash alternatives can be of high value. Instruments like money market funds or high-yield savings accounts offer high liquidity with medium to low-risk levels.
However, although they offer higher returns than bank savings—which don’t generate returns at all—they offer much lower returns than other alternative investments; private equity, real estate, and commodities are some accredited investors’ go-to options due to their long-term investment and high-return model.
Visit our insights page to learn more about how to diversify your portfolio with online businesses, or follow along as we acquire them, manage them, and then sell them.
A Look at the 8 Lucrative Traditional and Alternative Investments to Complement Cash Alternatives
Just as cash alternatives offer a different option if you’re tired of parking your cash in the bank generating zero returns or suffering from low interest rates, alternative investments can enhance this process even more.
Cash alternatives are short-term investments that provide modest, steady returns higher than those of standard bank accounts. They are typically low-risk investments ideal for preserving capital and are highly liquid, allowing easy access to funds.
However, they offer much lower returns and more active management, something busy investors are looking to leave behind. Besides, the returns might not always keep pace with inflation, eroding purchasing power over time.
On the other hand, alternative investments offer long-term investment opportunities that allow you to passively manage your portfolio, diversify your assets from market-correlated ones (such as traditional assets or even cash alternatives), and expect much higher returns.
To provide a wider image of what the investment world looks like and what it’s offering today, we should list down 8 other traditional and non-traditional (or alternative) investments that can act as an alternative to cash savings in your bank account:
1. Stocks
Stocks are one of the most popular traditional investments. They are shares of ownership in a company, allowing investors to participate in its success through dividends and price appreciation. When you buy a stock, you become a shareholder.
Stocks are bought and sold on stock exchanges, and their prices fluctuate based on market conditions, company performance, and broader economic factors. Like any other traditional investment, this investment model enjoys high liquidity, as stocks can be easily bought and sold on exchanges. Still, it’s also tied to public markets, which augments its volatility and risks. A good example could be buying Apple, Inc. shares.
2. Bonds
Bonds are another form of traditional investing. They are debt instruments in which investors lend money to a corporation, municipality, or government in exchange for periodic interest payments and the return of the principal at maturity. For example, purchasing U.S. treasury bonds.
Compared to stocks, some may say that bonds are safer investments since they provide regular income and are typically less volatile. However, the returns are lower in this comparison. The bond market is influenced by interest rates, and bond prices can fluctuate based on changes in the interest rate environment.
3. ETFs
From the family of traditional investments, ETFs trade on stock exchanges, similar to individual stocks—usually accessible through a brokerage account. They typically track an index, commodity, or basket of assets and provide investors with diversified exposure to a particular market segment.
ETFs offer the flexibility of trading throughout the day, making them attractive options for both long-term and short-term investors. However, similar to traditional investments, ETFs suffer from market risks. ETF values can fluctuate based on market conditions.
4. Mutual Funds
Mutual funds pool money from multiple investors looking to purchase stocks, bonds and other securities and diversify their portfolios. Managed by professional portfolio managers, mutual funds offer investors access to various assets and investment strategies. Mutual funds are valued at the end of the trading day, and transactions are executed after the market closes.
This shows that they are highly correlated with public markets, leading them to suffer from their volatility and possible downturns. However, between traditional investments, they do act as a strategy for diversification to reduce the risk associated with individual securities.
5. Real Estate
We start exploring alternative investments—assets that lag behind traditional stocks, bonds, cash, and other mainstream financial instruments. Real estate investing involves purchasing physical properties, such as residential, commercial, or rental properties, with the goal of generating income through rent and potential appreciation in property value.
Real estate can bring steady cash flow from rental income but also have high upfront costs and ongoing maintenance expenses. Although it is an alternative form of investing, market fluctuations do affect property values, and it’s recommended to be aware of local taxes and legal difficulties.
Investors can also tap into Real Estate Investment Trusts (REITs) for a more liquid and diversified approach to real estate investing.
6. Online Businesses
Online business investments involve purchasing internet-based businesses—or shares of them—, such as e-commerce stores, content websites, or SaaS companies. These businesses benefit from low overhead costs compared to traditional brick-and-mortar businesses and the ability to reach a global market.
They are becoming more popular due to a post-pandemic shift to an online presence for businesses and are almost non-correlated with traditional markets, providing an attractive option for investors looking to diversify their portfolios.
Fractionally investing in online businesses allows investors to own a portion of a digital asset without paying full price, enabling immediate capital allocation and democratizing previously inaccessible areas. Similar to mutual funds, portfolio managers handle accredited investors’ pooled money and use it to acquire, scale, and sell a business that provides quarterly dividends and high returns.
These are considered medium-risk investments and have low liquidity, but they can be a perfect strategy for diversifying your portfolio by adding profitable and scalable assets that could provide a 20% annual return on your investment.
7. Farmland
Investing in farmland involves purchasing agricultural land used for farming activities. Farmland investments can generate returns through crop sales, land appreciations and lease income.
This type of investment is considered a warrior against inflation and can diversify a portfolio. Related to agricultural production, these are tangible assets with high-income potential. However, weather and climate risks can impact crop yields, and it’s recommended that you have expertise in farm management.
8. Art and Collectibles
Art and collectibles investments involve purchasing physical art pieces and collectible items, such as paintings, sculptures, rare coins or vintage cars. These assets have the potential for significant appreciation in value over time and can provide personal enjoyment and aesthetic value.
Faithful to its alternative investment status, the market for art and collectibles is often less correlated with traditional financial markets, offering diversification benefits. However, these are highly illiquid assets and are difficult to sell quickly.
You also might require deep knowledge and expertise in the art industry to make informed purchases. Additionally, the market for art and collectibles can be unpredictable and subjective.
Overall, there are many ways of generating income to stop having your money sleeping in your savings bank account. While cash alternatives provide more traditional ways of returns and are attractive to many investors due to their short-term increasing interest rates, other traditional and alternative investments can provide higher returns and better low-term results, if you’re willing to wait.
Investors willing to explore beyond these traditional options can find investments with higher yields, extending the maturity range to two to three years. The liquidity might be lower, and the risk might be higher, but the results will surprise you.
Why Investing in Online Businesses Could Be a Better Option Than Cash Alternatives
Cash alternatives like high-yield savings accounts, money market funds, and treasury bills offer high liquidity, allowing you to access your funds relatively quickly in case of emergencies. However, apart from enjoying this, it’s keen to focus on other investment strategies that understand and try to fight against economic uncertainty, mostly found in public markets.
For this matter, investing in private equity can help you achieve much higher regular income and apply a diversification strategy to your portfolio that will mitigate and spread risk across different sectors and business models, potentially stabilizing your returns if one of them underperforms.
Fractional ownership of online businesses through platforms like WebStreet can offer options surpassing traditional cash alternatives. Unlike traditional modest returns, more suitable for conservative investors who prioritize safety and stability, online business investments are better suited for investors with a higher risk tolerance seeking growth potential.
They allow investors to diversify their portfolios by owning shares in multiple online businesses, providing quarterly dividends from dominant models that have shown great growth over the past few years. According to Nasdaq, 95% of the purchases will be made online by 2040.
The process is straightforward. WebStreet matches accredited investors with portfolio managers for passive investment opportunities. The investors select the funds they want to invest in based on portfolio managers’ track records and can expect quarterly earnings and reports until the assets are sold (after a 2-4 years holding period).
If you are a busy founder or entrepreneur wanting to diversify revenue streams without time investment, seek high-growth returns from digital assets, or diversify your portfolio to mitigate risks, WebStreet can be your ally. Just remember to check your accredited investor status first!
The profitability and high potential of digital assets can turn your portfolio into an impressive alternative investments one, while you earn high returns through a fully passive investment process.
Click Here To Start Your Journey With WebStreet Today. Unlock the door to diversified, alternative investments and learn more about investing in online businesses by reading our insights.
