Market (SPY) valuations remain elevated by most metrics – trading at levels not seen very often historically – at least judging by its PE and Shiller CAPE ratios. What actually happens going forward (will it keep going up, drop significantly, or go sideways?) is anyone’s guess – but tax reform could be a tailwind that provides some more support. If I had a crystal ball, I’d have a better answer to this question.

Interest rates are rising against the backdrop of these elevated valuation levels, however, and the yield curve continues to flatten:


While not perfect, the spread between the 10-year and 2-year has been a relatively reliable predictor of upcoming recessions, so it’s probably at least worth keeping track of. This spread looks pretty narrow at the moment, at around only 55 basis points.

While I remain mostly fully invested (as a younger investor, I have a long, long time to wait and have been pretty good about keeping recurring bills to a minimum, establishing an emergency savings account, etc.), I don’t think it’s crazy to build up a cash pile at this point, especially for those of us with a shorter time frame. The problem for me, psychologically at least, is the concept of “cash is trash” – which has been ingrained into my brain (and I suspect many others as well), causing a bias in my thinking. Will this be the case going forward? Probably not.

While cash doesn’t yield anything in most mainstream bank accounts, my search for better alternatives led me to online savings accounts. Ally (ALLY) and Synchrony Financial (SYF) both offer these higher-yielding accounts, with APY’s of 1.45% and 1.55%, respectively.

While neither firm has a traditional branch you can walk into (that I’m aware of, at least) and require an already established checking account to link up with, they also offer at least some return on the cash that they’re entrusted with. It’s also relatively more liquid than a CD or a treasury bill. If I’m going to hold cash going forward, I think I’ll stick with my Synchrony account instead of my traditional US Bank (USB) Savings that basically takes my money and charges me for the privilege of having them store it for me.

Print Friendly, PDF & Email