Cashing In

Cash and short-term securities have made a big comeback in the last 12 months, thanks to an aggressive rate-tightening program by the Federal Reserve as it battles inflation.

The yield on the six-month Treasury bills is above 5%, its highest level since 2007. My colleague Andrew Welsch has weighed in on the trend here.

The high yields are suddenly appealing, but some investors favor caution is in order, especially for those with a long-term approach.

In a recent interview, Gibson Smith, founder and chief investment officer of Smith Capital Investors, told me that while those Treasury bills are enticing, they should be put into context when thinking about a portfolio.

"Those yields are only there for a short period of time. If you buy a one-year bill, at the end of that year the yield is gone, and you will have to reinvest in a market that may have lower yields," he said. 

Lawrence Gillum, fixed-income strategist at LPL Financial, is cautious as well.

"While we certainly think cash is a legitimate asset class again, unless investors have short-term income needs, they may be better served by reducing some of their excess cash holdings and by extending the maturity profile of their fixed-income portfolio to lock in these higher yields for longer," Gillum wrote in an email.

Plenty of other investors, however, would rather take the money up front and let the chips fall where they may. Investors, of course, can do both, allocating part of the their portfolio to short-term holdings and putting more capital into longer-term assets.

One approach to consider is a bond ladder. It entails assembling a portfolio of individual bonds or funds that mature at regular intervals and reinvesting the principal in a new longer-term holding when the nearest-term bond matures.

I wrote about the approach late last year.