You’re never going to get rich investing in short-term and money-market funds, and watching the trading prices here might sometimes feel like watching paint dry, but you won’t have to worry about looking away from the ticker tape a couple of days and seeing your investment down 10%, 15% or even worse in instruments like this. There are multiple other short-term and money market instruments out there to choose from.
2. Adjustable Treasury ETF
Another investment in Treasury debt is in the Treasury Inflation-Protected Securities (TIPS). The go-to ETF for this strategy is the SPDR Bloomberg Barclays TIPS ETF (NYSE: IPE), which invests in Treasury debt that has an adjustable yield rather than investing in fixed coupon debt. As Treasury yields and inflation rise, the yield on the TIPS is supposed to adjust higher at the same time or with a short delay.
Just keep in mind that if short-term interest rates start to go back down, the yield is supposed to come back down here too. You aren’t going to get rich going for adjustable-yields with the government guarantee, but you also won’t ever go broke. One consideration is that some TIPS were constructed at one point in the no-rate and low-rate cycle in a manner that they could actually get negative yields temporarily.
3. Short-Intermediate Corporate Debt
If you want a little extra yield than short-term government debt, there is corporate debt issued by the top companies in America. They almost always have a higher yield than their government counterparts, and almost all the companies are investment grade in the Vanguard Short-Term Corporate Bond ETF (NYSE: VCSH). This ETF goes out a little further on the curve for added yields as it tracks the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. The ETF includes dollar-denominated, investment-grade, fixed and taxable debt issued by industrial, utility and financial companies. Just keep in mind that this ETF was created after the Great Recession.
4. The Preferred Stock ETF
The iShares Preferred Stock ETF (NYSE: PFF) invests in preferred shares rather than common shares. This is a tad more complicated for those new to investing, but they generally come with better safety and higher yields than buying regular stock. During the market crash of 2008 and 2009, many investors wanted to look at preferred securities of major banks and major companies. If things got too bad in the economy, preferred shares, similar to bondholders, are actually senior to the common stockholders. That means if a company folds, the preferred shareholders may still get money back even if the common stockholders get wiped out entirely. Unfortunately, even this ETF performed poorly during the Great Recession due to a high reliance on financial and other companies that were hurt badly during the stock market sell-off.
5. Gold as the Ultimate Uncertainty Hedge
You’ve undoubtedly seen many gold coin and gold gimmick commercials on TV over the years. Well, gold is often considered the ultimate safe-haven trade by many U.S. and international investors alike. The SPDR Gold Trust (NYSE: GLD) is the granddaddy of all gold ETFs as the largest physically backed gold ETF. Gold has not been as dominant during the great bull market in stocks and as interest rates have risen, but when investors want the ultimate safety they frequently go for gold. During the Great Recession, the gold ETF and gold each did slide lower in 2008, but it bottomed late in 2008 about four months ahead of the V-bottom in stocks, and it was off to the races long before stocks with a much stronger gain than equity ETFs through all of 2009 and 2010.
6. Defensive Stocks
Invesco Defensive Equity ETF (NYSE: DEF) aims to track the Guggenheim Defensive Equity Index, which is designed to provide exposure to equity securities of large-cap U.S. corporation. The index selects companies that are deemed to have superior risk-return profiles during periods of stock market weakness and that still offer potential upside during periods of market strength. This ETF might not be immune to an outright stock market crash, but during most sell-offs investors who want to (or need to) keep exposure to stocks almost always flock toward large-cap and defensive companies with quality balance sheets and stable dividends.