Put Your Cash to Work

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Even with the economic outlook improving, wary investors are still parking more than $3.6 trillion in cash on the sidelines. In this five-part series, we offer tips for making that money productive again.

A growing number of Americans seem to have it: a nagging anxiety, the kind that comes from a sense they should be doing something ? something that makes them nervous. See the dentist? Nope. Hit the gym? Not a bad idea. But this uneasiness isn?t about working up a sweat or getting a tooth pulled. It?s about the rising discomfort over financial health. It?s about realizing it?s time to put your money back to work.

As a nation, we are sitting on quite a pile of cash. There?s $3.6 trillion in money-market funds today ? nearly the highest amount ever. What?s more, those money-market funds are paying historically low rates: The average money fund pays just 0.37 percent, according to Bankrate.com. At that rate, your money will double in … let?s see … 144 years. Most of us have a much shorter time frame than that.

Americans lost $2.7 trillion from their retirement accounts in the crash, virtually everyone?s home has lost value and more than 9 percent of us are unemployed. It?s tough to think about getting ahead in these circumstances, but more and more people are realizing that anyone trying to rebuild a nest egg needs to do a lot better than a 1 percent annual return, no matter how safe cash seems.

Some folks have already shown their willingness to pull some of the cash out from under the mattress: Financial planners are fielding calls from clients almost as eager to get back into the market as they were desperate to get out of it a few months ago. Atlanta-based financial planner Wes Moss says many of the calls he?s been receiving are a direct result of clients frustrated with the paltry rates offered? by certificates of deposit and money-market funds.

All told, investors have yanked more than $230 billion out of money-market funds since the beginning of the year; $125 billion of that was withdrawn in June alone. The market?s spring rally encouraged that many more people to release the grip on their cash and start buying stocks again.

But throwing money at stocks ? especially in this market ? isn?t the answer. In fact, advisers say the real issue today is figuring out the investments that will grow faster than the shaky economy and the areas that will provide some safety when things go awry. It?s no longer a matter of sticking some money in bonds for safety and plunking the rest into stocks.

Stocks require even greater scrutiny, especially given how long-term investors can get hurt by fast-moving traders in volatile markets. Bond investing, meanwhile, isn?t just about safety anymore. Experts say bonds can add meaningful return to your portfolio. And don?t overlook other corners of the financial world: Exotic-sounding investments like commodities and options are becoming mainstream. As for real estate? It?s not just your home; it could very well become your retirement income.

Of course, the economy can still be a scary thing, and investors would do well to hold a little more cash than usual. Most experts agree we?re in for several lean years. And investors may be faced with much tougher challenges ahead ? including higher taxes, rising inflation and a ballooning deficit that will likely weaken the dollar even further.

Catching up ? let alone getting ahead ? in this sort of environment will require a lot of strategy, some calculated risk-taking and maybe a little antacid at the ready. But experts say that just because investing your cash may be trickier than ever, that?s no excuse to avoid it. ?You have to look at your investments in a different fashion or you?ll miss the boat,? says Dawn Bennett, chief executive of Bennett Group Financial Services.

2009 Copyright The New York Times Syndicate