According to recent disclosures, Warren Buffett’s Berkshire Hathaway has recently revealed its substantial cash reserves and significant investments in U.S Treasuries.
This large position isn’t surprising, given the ongoing market volatility and extended valuations in equity markets. It has become more appealing to consider the safety of parking money in certificates of deposits (CDs) and U.S. Treasuries. As of Oct. 12, the yields on these investments have become enticing, with a six-month Treasury yielding 5.35%. A one-year Treasury at 5.41% and a two-year Treasury offering 5.04%. With some research, you can find FDIC-backed CDs providing similar yields.
One strategic way to invest in these conservative options is by utilizing a method called “laddering.” Laddering allows you to balance liquidity needs with the opportunity to lock in yields for an extended period. For instance, if you have a $100,000 savings account and your current yields are not competitive, consider this example: utilizing CDs for your shorter-term investments.
Invest $25,000 in a three-month CD
Allocate $25,000 to a six-month CD
Place $25,000 into a nine-month CD
Put $25,000 into a 12-month CD
In this example, when the three-month CD matures, you can simply reinvest the funds into a 12-month CD as the other holdings have moved three months closer to maturity. In some instances, you may want to extend the maturities even further, depending on your financial goals. Warren Buffett is known for maintaining a conservative fund, waiting for an opportune time, such as a market correction, to deploy cash when stocks “are on sale.” The good news for you as an investor is that you are currently being rewarded for holding conservative assets. Maintaining a portion of your portfolio in cash and short-term investments carries several advantages. It helps offset the volatility of your stock holdings and provides peace of mind, knowing that you have funds set aside to cover expenses as they arise.