Investors Alley

Last week I made several presentations at the MoneyShow in Orlando. I enjoy shows like this, where I can meet you, my subscribers, and get information on other investment ideas. With the stock bear market this year, many investors wanted information about alternate investment ideas.

Investing in whiskey barrels or casks has become a hot idea, so I spent time with experts in the field, learning the pros and cons.

While it sounds interesting – and I’m doing it myself – there are some things to look out for…

Let’s start with the good stuff (not including the fact you get to invest in whiskey). You can buy a cask of bourbon, Irish whiskey, or Scotch whisky for roughly $3,000 to $10,000, a reachable amount for many investors. Whiskey is a hot commodity, producing annual returns in the mid-to-high teens, which means a double of your investment in three to five years.

I was surprised to learn about the potential for bourbon. Bourbon whiskey can only be produced in the U.S.; however, it has become a worldwide hit, with drinkers around the globe eager to try our bourbons. Whiskey distillers are working hard to satisfy domestic, let alone international, demand, so the demand curve for barrel investors looks very attractive.

I like to say “barrels,” but the whiskey experts I talked to insist the correct term is “casks.” I think that applies more to Irish whiskey and Scotch whisky.

Overall, it appears that whiskey casks offer excellent investment opportunities. So let’s look at the negatives.

For one thing, the whiskey investment market is scorching and unregulated. As a result, a lot of new sellers are jumping into the whiskey-selling business to make a quick buck.

When you buy a cask, you get a certificate of ownership with the number and location of the barrel. That will be your barrel. A couple of things could turn your investment sour. (And not the good kind, like a whiskey sour). If the seller disappears after a few years, you may have a lot of trouble selling to realize your profits—even though you are the owner of record of some whiskey in the barrel. Even worse, you may be scammed into buying a non-existent barrel. In that case, you would be out of your entire investment.

Don’t jump into whiskey investing through an email ad or telemarketing call. You need to verify that the seller is legitimate and committed to the whiskey trading game for the long term.

At the MoneyShow, I spent time with the CEO of OENO Futures, the company I use for fine wine investing. I spent several hours getting information about the whiskey house they partner with and recommend.

I hope that by this week, I will have my first couple of casks purchased. I will go for a bourbon barrel and an Irish whiskey cask.
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The whole growth-versus-value investing debate must be one of the dumbest discussions of all time.

That may sound funny coming from someone who uses a value-oriented approach to picking bank stocks, REITs, and closed-end funds. Surely, I of all people believe that value investing works.

It’s true – I do believe it works, and I have proven it does to myself, my clients, and my subscribers for decades.

But that doesn’t mean I think growth investing doesn’t work.

In fact, I have learned over the last decade that a growth investing method I like to call “Twin Momentum” works – and works very well.

Today, let me show you just how well it works – and give you a few Twin Momentum stock plays…

Twin Momentum, the way I use it, means both that the company’s fundamentals are strong, and that the stock has had strong price momentum over the past year.

Over the weekend, I sat down and ran a simple screen that can help us find candidates for a Twin Momentum approach to growth stock investing. I limited the scope to just those companies that have been earnings high returns for their owners on a consistent basis.

Then I wanted to see decent buyback rates over the past five years. The fact that a company has been actively buying back stocks means that after covering all expenses and investing in growth, it had cash left over and was willing to return it to shareholders.

Now we are looking only at companies earning high returns that are also shareholder friendly.

And then I just buy the ones that have shown the highest price momentum over the past year.

This is a simple approach that can be rebalanced quarterly and does not require sitting in front of the screen all day. It handily beats the S&P 500 and even edges out the market-leading NASDAQ 100 index over the last five years, when tech stocks were rocket ships to profits.

It even outperforms in down years like 2018 and 2022. This simple Twin Momentum approach to growth investing was down just 3.29% in 2018, while the S&P 500 dropped by 6.24%. This year, with the S&P 500 down by 20% (as of this writing), the Twin Momentum approach is down just 11.31%.

When I ran this Twin Momentum list last weekend, I came up with some interesting names. It was not the super sexy stocks that made a list. Instead, it was companies that make the products that fulfill our daily needs.

To my wife’s great dismay, one of my favorite road trip spots to stop for a mid-morning breakfast is Cracker Barrel Old Country Store Inc. (CBRL). I do not care a bit for its giant rocking chairs or down-home country store.

I am there for one thing and one thing only: chicken fried steak and eggs.

For my money, Cracker Barrel has the best chicken fried steak and eggs of any chain restaurant in America. I have found better in some of the out-of-the-way diners into which I have dragged my poor bride over the years, but when it comes time to is hit the off-ramp for breakfast or lunch, Cracker Barrel is my go-to choice.

It turns out Cracker Barrel not only makes a mean breakfast, but the company also produces pretty high returns on the cash its shareholders have invested in the business. Over the last ten years, Cracker Barrel has produced an average return on equity of over 30%.

It is also buying back an average of about 1.3% of the company every year. Cracker Barrel recently hiked its dividend back up to the pre-pandemic level of $1.30 a share, giving us a yield of about 3.85%.

The company is definitely shareholder friendly.

Cracker Barrel stock has held up much better than the market in 2022, falling by slightly more than 13%. In the last three months, momentum has accelerated, with the stock rising up more than 17%, while the S&P 500 is down almost 8% over the same timeframe.

Another intriguing company on the Twin Momentum list I pulled is Donaldson Co. Inc. (DCI). Donaldson does not make any fancy technology products. It does not manufacture breakthrough life-saving drugs or medical devices.

It does not even make a great breakfast.

However, you can’t really make any of these things without using some of Donaldson’s products. The company makes air filters that make the clean rooms needed to manufacture semiconductor chips. Its housings and filters are needed to provide sterile-grade air and water for biotechnology research. Filters like Donaldson’s are used to process almost every ingredient in Cracker Barrel’s delicious chicken fried steak.

In fact, there are not too many industries that do not use Donaldson filters for some part of the manufacturing process.

It may sound like a boring business, but this company has delivered an average return on equity of more than 25% to its shareholders for the last decade. It buys back about 1.2% of the company annually and pays a dividend of 1.64%.

The stock has healthy price momentum as well. With the S&P 500 down 20% on the year, Donaldson shares are off by just a little more than 5%.

In the last three months, the stock is up more than 11%, with the index down almost 8%.

These are just two of the Twin Momentum stocks that I found intriguing. The rest of the list for the current portfolio of potential market-beating stocks is:

Avery Dennison Corp. (AVY)Chemed Corp. (CHE)Credit Acceptance Corp. (CACC)United Rentals Inc. (URI)Diamond Hill Investment Group Inc. (DHIL)Discover Financial Services (DFS)FMC Corp. (FMC)
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On September 15, Adobe (ADBE) agreed to purchase the privately held design software company Figma for roughly $20 billion.

The purchase price, which Adobe will pay half in cash and half in stock, is double what Figma was valued at in its most recent private funding round in 2021, and 10 times its 2019 valuation. At the time of signing, the acquisition was the most expensive ever of a private U.S. company, topping Facebook’s $19 billion purchase of WhatsApp in 2014.

The deal valued the company, founded in 2012, at 50 times its annual recurring revenue, which Adobe said would top $400 million in 2022.

Is Adobe a buy after this deal? Let’s take a look…

What Figma Does

Figma allows software developers to collaborate remotely and design everything from slides for presentations to user interfaces on mobile apps. It is part of a wave of new browser-based design tools that have opened up the creative process to millions of non-designers—something that expanded the market and presented a potential threat to Adobe, the traditional leader in design software. Figma’s collaborative-design-workspace is in direct competition with Adobe’s XD.

The main difference is that Figma is free for individual users. Adopting a try-before-you-buy model has allowed product teams to experiment with Figma without the need for a sign-off from an IT purchasing manager. This is how it crept into the operations of many important Adobe customers, including Microsoft (MSFT).

In August, CNBC profiled Figma’s growth inside Microsoft. Here is one item from that profile: “The product has since become so central to how Microsoft’s designers do their jobs that Jon Friedman, corporate vice-president of design and research, said Figma is “like air and water for us.”

With its importance to such a major customer, it’s really no surprise that Adobe bought Figma—it was obviously afraid of losing market share.

Figma’s web-based tools would give Adobe a better shot at the “more modern, cloud based, composable and open future” that is opening up for design software, said Liz Miller, an analyst at Constellation Research, to the Financial Times. The merger will also allow Figma to bring Adobe’s capabilities in imaging, 3D and video on to its platform. And obviously, Adobe will have the opportunity to tap into the millions of customers using Figma, which enjoyed a boom during the pandemic as remote work flourished.

Wall Street’s Thumbs Down

Wall Street hated the deal though, sending Adobe’s stock tumbling more than 20% after the announcement, saying it is paying too much for Figma.

But Adobe has been here before. In 2011, it was running out of room to grow in the market for selling desktop software to professional designers, so it took a gamble, becoming one of the first software companies that cut off sales of packaged software and moved to the cloud in pursuit of growth.

At the time, Wall Street analysts turned their thumbs down on that strategy, too. Analysts saw the move as merely a way to sell a bit more design software to Adobe’s existing 12 million to 13 million customers. They were spectacularly wrong. What actually did happen was that user numbers for Adobe’s Creative Cloud have today risen to more than 30 million.

Adobe’s bet paid off, setting an example of how to navigate the transition to the cloud for the entire software industry.

The move remains a stupendous success was a stupendous success. Abobe’s transition to cloud-based subscriptions, under which users pay a monthly fee, has been a bonanza for the company. Subscriptions now account for about 92% of the company’s revenue.

It’s a Needed Deal

Figma’s web-first approach gives customers new ways to use design software and opens the market up to a lot more users, much as the cloud had before. It also appeals to a new generation of users who have grown up using the web.

Adobe’s gamble is that once again—as often occurs when new generations of technology appear—the new market will end up being much larger than the old one. That translates to offering very low-priced versions of a product or letting some customers use the product for free.

Adobe was already moving in this direction, announcing a “freemium” version of its software last year that was aimed at taking on Canva. This Australian start-up design software company is the most notable exponent of this browser-based revolution in design software and the most direct long-term threat to Adobe’s mainstream design business.

In other words, Adobe’s purchase of Figma was a necessary deal in its battle against Canva, which has just begun.

While ADBE stock has recovered 13% from the September low, it is still down nearly 50% over the past year and more than 40% year-to-date.

But I like the Figma acquisition, so I believe Adobe is a buy anywhere up to $350 a share.
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Last week, several formerly high-flying, large-cap tech stocks fell back to earth after disappointing third-quarter earnings results. Investors counting on these well-known names will be disappointed.

Instead, it’s time to look at companies that put investors first…

Third-quarter earnings from Alphabet (GOOG), Microsoft (MSFT), and Meta Platforms (META) came out on Wednesday, October 26. Much slower growth than anticipated resulted in one-day declines of 5% to 8%. Year to date, these three large-cap tech stocks are down 33%, 57%, and 58%, respectively. With numbers like these, it’s easy to understand why many 401k accounts are in the tank.

While stock prices of big-name companies are falling, plenty of smaller companies operate profitably in different sectors of the economy. The large companies listed above have businesses that span the globe, which puts them at risk from slowdowns in other countries and adverse currency fluctuations, but smaller companies can be creative and flexible in order to provide better customer service and maintain profitability. When profits grow, dividends do, too—so I look for companies that share those profits in the form of attractive dividends for their shareholders.

Here are three stocks that pay attractive dividends and recently announced great earnings or substantial dividend increases.

Blackstone Mortgage Trust (BXMT) is a finance REIT that originates commercial property mortgages. For the 2022 third quarter, BXMT reported distributable earnings of $0.71 per share, beating the Wall Street consensus by $0.14. The company grew quarterly earnings, while the analysts had forecast a decline. BXMT pays a $0.62 quarterly dividend, so there is potential for an increase. The shares currently yield 10.3%.

Ares Capital (ARCC) surprised the market with a $0.05, or 11.6%, increase in its quarterly dividend—its third dividend increase this year. Ares is a business development company (BDC) that makes loans to small-to-midsize corporations. The company reported that 73% of its loan portfolio is floating rate, allowing ARCC to grow profits in a rising rate environment. The shares currently yield 10.1%.

On October 25, energy midstream company Energy Transfer (ET) increased its dividend by 15%. ET provides oil and gas pipeline, terminal, and processing services. The company owns 120,000 miles of pipeline and transports 35% of the crude oil produced in the U.S. Over the last year, the ET dividend grew by 51%. Over the same period, the stock rewarded investors with a 29.9% total return. ET shares currently yield 7.6%.

These are just three examples of stocks that pay great (and growing) dividends as their businesses prosper. There are many more stocks that can provide similar returns. If you don’t like how your portfolio has performed this year, consider a new strategy focusing on companies that take care of investors by paying attractive and growing dividends. It’s a strategy that works through both bull and bear market cycles.
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To help hold down fuel and energy prices, the Biden administration has been selling oil out of the Strategic Petroleum Reserve (SPR), to the tune of three million barrels per week since the start of the year.

Now, with the SPR at its lowest level since the 1980s, the administration’s plan to refill the reserve will prop up profits in the energy patch.

That’s creating some nice profit opportunities…

After selling 180 million barrels out of the SPR to keep oil prices down, that tactic has run its course. After peaking at about $125 in early summer, WTI crude now trades for around $85. It’s impossible to say whether the SPR releases helped bring down the price, or whether fear of a global recession and the China COVID lockdowns had the bigger effect.

However, with oil at $85, gasoline remains expensive. Diesel fuel is also costly, with very little supply to fall back on if there is a disruption in the energy supply chain.

The Biden administration recently shifted gears, releasing a press statement with its plan to refill the SPR. Here is an excerpt:

…the President is announcing that the Administration intends to repurchase crude oil for the SPR when prices are at or below about $67-$72 per barrel, adding to global demand when prices are around that range. As part of its commitment to ensure replenishment of the SPR, the DOE is finalizing a rule that will allow it to enter fixed price contracts through a competitive bid process for product delivered at a future date. This repurchase approach will protect taxpayers and help create certainty around future demand for crude oil. That will encourage firms to invest in production right now, helping to improve U.S. energy security and bring down energy prices that have been driven up by Putin’s war in Ukraine.

There is a lot here to parse. First is the assumption that crude oil will drop to the $70 range. But when the administration stops selling out of the SPR, it’s likely to push oil higher, not lower. The plan for a “competitive bid process for product delivered at a future date” seems complicated. The plan appears to encourage production by offering less than current market prices.

Instead, the plan puts a floor on the price of oil. Upstream energy producers are very profitable if they get $70 per barrel. I suspect energy traders will use information from the Biden administration’s announcement to keep the price of oil well above $72. I doubt this move will spur energy companies to ramp up production. They want to see more long-term support, which means more drilling permits and fewer regulatory hassles.

All of this means that oil and gas energy producers will remain very profitable. Energy has been the only profitable stock market sector this year, and it will not give up that lead. To invest in energy, you can go with mega-cap companies like Exxon Mobil Corp. (XOM) and Chevron Corporation (CVX). If you want to go with companies with more leverage to higher energy commodity prices, here are the top 15 holdings of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

PSX, VLO, and MPC are refining companies. The rest are primarily upstream producers and will continue to profit from high energy prices.
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One of my favorite places to hunt for dividend stocks is among the companies Wall Street is avoiding—and chiefly among these, at the moment, are materials stocks. Wall Street is fearful a deep recession will hurt demand for materials, especially industrial metals, so it keeps selling off these companies’ stocks.

Meanwhile, Wall Street is also totally ignoring reports of potentially massive shortages of industrial metals, recession or not. The news—as with so much financial news lately—comes out of the U.K.

That creates a nice opportunity for us…

Russian Metal Ban

We’re all familiar by now with the fact that Russian energy exports have been put on a blacklist, resulting in higher oil and natural gas prices.

But now, the London Metal Exchange (LME)—the world’s largest market in standarized forward contracts, futures contracts, and options on base metals—is facing pressure from many traders to stop accepting Russian metal. The fear is that LME warehouses will become a stockpile for unwanted material, distorting global prices for commodities like aluminum and copper.

The LME plays a critical role in the daily functioning of the global industrial metals market, supplying metals when there is a shortage or taking metals into its warehouses when there is an oversupply.

The Financial Times reports that metals consumers are now saying to the LME: “Your contract is not fit for us at the moment, we are self-sanctioning Russian material, we don’t want to dip into the LME warrant pool and pull out a warrant for Russian material.”

If the LME continues to accept unwanted Russian material into its warehouses while many of its users shun it, there could be an oversupply of unwanted base metals. The effect would be that LME prices would reflect the glut of cheap, unwanted Russian metal it holds and not the everyday price charged in real-life deals that happen directly between producers and consumers.

Many private deals already include a premium on the price for transactions that do not include metal supplied from Russia. For example, Chile’s Codelco—the world’s top copper producer—is selling its metal for $235 per ton above the LME benchmark three-month contract.

If this mismatch continues, it will undermine the LME’s role as a marketplace that sets a fair and accurate global market price for industrial metals.

In addition to the LME, the Biden administration is also considering whether to target Russian aluminum through a U.S. ban, raising tariffs, or putting sanctions on Rusal, the largest Russian producer of aluminum.

Any U.S. sanction on Russian exports of aluminum (used in aircraft, weapons, vehicles, cans, etc.) would have far-reaching implications for global metals trading and also be inflationary.

Aluminum’s Time to Shine?

If there is no ban, but “self-sanctioning” becomes more widespread in 2023, we could see prices for Russian metals fall and the LME warehouse stockpiles keep rising, as it is the market of last resort.

However, aluminum is a different story than copper or nickel, which is already banned by the LME.

Russia contributes around 8% of global aluminum supply, and also exports lots of its precursor materials, bauxite and alumina. In the past, Russia had supplied up to three-quarters of LME aluminum warehouse stocks, so a full ban on its metals would certainly cut the metal available on the exchange.

Of course, the LME is hoping the White House acts, taking the decision out of its hands. But whichever entity takes action first, it will be good news for one company whose CEO recently said Russian aluminum should be banned.

Rio Tinto

That company is Rio Tinto Group (RIO), which is the only major mining company in the world that has a significant aluminum division. In fact, aluminum was its second-highest earner in terms of underlying cash profits in the first half of 2022, only behind iron ore and ahead of copper. A ban on Russian aluminum would boost Rio Tinto even further, thanks to its major aluminum operations in Canada. (The company bought Canada’s aluminum giant Alcan back in 2007.)

Of course, there is a lot more to Rio Tinto than aluminum. I like the fact that the company is also investing with a focus on the longer-term. On October 11, Rio Tinto announced that it will modernize its Sorel-Tracy site in Quebec to bolster the supply of minerals controlled by China, while reducing emissions at the site by introducing a new smeltering technology.

The company will start producing titanium metal and quadruple its scandium oxide output to 12 tons annually at the site. These materials are essential to aerospace, medical products, and fuel cells. Currently, China produces three-quarters of finished titanium products and 61% of scandium globally.

In addition, Rio Tinto has bid to take full ownership of Canadian miner Turquoise Hill (TRQ) for $3.3 billion, which would give it greater control over the vast Oyu Tolgoi copper mine in Mongolia. Turquoise Hill holds 66% of the Oyu Tolgoi project, one of the world’s largest known copper and gold deposits, located in the Gobi desert. The Mongolian government owns the remaining stake.

And don’t forget that Rio Tinto has a large portfolio of long-lived assets with low operating costs, meaning it is one of few miners that will remain profitable through the commodity cycle. Plus, most of its revenues come from operations located in the relatively safe havens of Australia and North America.

Rio Tinto’s balance sheet is sound, and I expect the company to run a relatively conservative balance sheet for the foreseeable future. I love the management’s focus over recent years on returning excess cash to its shareholders. In July, Rio Tinto management said it would pay a semi-annual dividend of $4.3 billion ($2.67 per ADR), or 50% of underlying earnings. That was the second-highest half-year payout on record, in line with the company’s dividend policy.

I believe Rio Tinto’s capital discipline will continue, the balance sheet will remain sound, and distributions to shareholders will remain generous (although the current 12.65% yield will drop), even if metals prices like iron ore weaken.

That makes Rio Tinto a buy anywhere in the $50s.
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While the markets remain in a state of turmoil and prices continue to fall, corporate activists have been picking up their pace. Two developing situations are now worth the attention of patient but aggressive investors…

Because the potential returns are getting quite big. Here’s what I’m seeing…

First, there is the ongoing saga of Kohl’s Corp. (KSS). I am stunned that the board of this company has not been replaced in its entirety, and each of the directors sued personally for negligence. The department store turned down takeover bids as high as $68 back in May when the stock was trading in the mid-50s.

The board felt that the department store chain was worth more than that price.

They were wrong.

Kohl’s missed earnings expectations in the second quarter and dramatically reduced its expectations for the full year.

As soon as the report hit the wires, the rout was on: the stock now trades for less than $30.

Activist investors are piling on, demanding that the board be replaced and the chairman of the board be fired. A proxy fight is shaping up, and I am hard-pressed to see how the board wins the day.

Jonathan Duskin, the head of the activist firm Marcellum Advisors, recently sent a letter to the beleaguered depart store chain’s shareholders. He was not nice about demanding the ouster of the entire board. Instead, the letter highlighted the failed sales process at much higher prices, executive departures, and the downgrading of Kohl’s debt to junk status. Furthermore, the activist called the wounds at Kohl’s self-inflicted due to execution issues on the part of the board.

There is little doubt in my mind that Kohl’s is worth a lot more than its current share price. Of course, there will be headwinds from a weakening economy and margin pressure due to inflation, but the stock price should be well above current levels.

The biggest obstacle will be the board’s willingness to fight the needed changes.

The stock is trading at just eight times forward earnings expectations and 82% of tangible book value.

Management has shown itself capable and willing when it comes to destroying shareholder value, so I would stay small and move slowly with Kohl’s, using weakness in the market to accumulate a position. The profit potential here is too big to ignore.

More experienced investors might want to use cash-secured puts or long-dated out-of-the-money calls to bet on the stock’s recovery.

Farmer Bros. Co. (FARM) is another ongoing saga that has attracted the attention of activists. The history of the coffee roaster is full of drama, including family disputes, ill-fated M&A activity, and what was, at the time, a very unpopular move from California to Texas.

Then the pandemic came, and Farmer Brothers was hit hard. Its biggest customers were hotels, restaurants, and casinos, and sales dropped dramatically. The problem is that business has not recovered as strongly as hoped as the economy began to reopen.

Revenues are still well below pre-pandemic levels, and expenses are rising. Debt levels have increased by more than 20% year over year. Cash on hand is down to less than $10 million. Farmer Brothers is losing money, and none of the analysts following the company expect it to turn a profit in 2023, either.

There has been some insider buying by the CEO, CFO, and chief supply chain officer, but there is no convincing evidence the business is improving.

Now, activist investor KCP Partners has accumulated a stake of more than 6% in the company and is pushing for board seats. Farmer Brothers’ board has not issued a response, but I doubt the company will give in too quickly.

If KCP does get board seats, I expect it to push for the sale of the company.

A sale should get a much higher valuation than the current stock price. The new facilities in the Dallas area are running at half capacity, so there is plenty of room for expansion of management can get the core business back on track.

A buyer whose business is already back to pre-pandemic levels could immediately double the facility’s output.

Again, I don’t think you need to back up the truck for this stock, but a small position could lead to outsized gains. Either management gets the business turned around and starts paying down debt, or activists will force a fight to unlock the obvious shareholder value present in this company’s assets and potential.
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In my free weekly video, I have an interesting chart to show you.  Over 20+ years, the S&P 500 has a historical pattern of how it performs in November and December. But, more importantly, how it performs during midterms.  We have midterms in two weeks, obviously, so let me give you a glimpse of how

With interest rates rising, your cash holdings could now earn you some interest income.

Again, they could—but they may not be doing so. Many financial institutions are not passing along higher interest to customers holding cash. You should check to see how much your money earns, and if it’s a pittance, look at some alternatives.

Here are some ways to earn interest income…

In recent months the Federal Reserve Board has aggressively increased its target rate. The rate currently stands at 3.25%. The fed funds rate provides a base rate for short-term loans. For example, the three-month T-bill yields 3.95% at Charles Schwab.

Yet many financial institutions haven’t increased the rates they pay on savings accounts. They continue to pay near-zero rates that resulted from meager market interest rates in years past.

I have quite a lot of cash in a business savings account at my credit union. That money continues to earn the measly 0.10% that has been the rate since I opened the account five or six years ago.

I looked at Bank of America’s savings rates, but they’re even worse. They pay 0.01% to 0.04% on savings accounts and just 0.05% on a 7-month CD, the shortest term they offer.

I have most of my investment portfolio with Charles Schwab. They currently pay 0.40% on cash balances. It’s better than $0.10%, but still pretty meager.

As an alternative to earning nearly nothing on your cash, look for money market mutual funds and bank money market accounts. It’s important to understand the difference between the two types of investments.

Money market mutual funds invest in short-term liquid securities such as Treasury bills or corporate commercial paper. These funds earn short-term market rates minus a management expense. For example, the Fidelity Government Money Market Fund expenses are 0.10%. Net of fees, the fund has a current yield of 2.49%. A money market mutual fund will have a stable $1.00 share price.

Money market savings accounts are FDIC-insured bank accounts. The banks set the yields, which vary widely from bank to bank. You can find accounts paying almost nothing up to around 3.0%. To take the bank path, you need to shop around and be willing to send money to banks with which you may not be familiar.

Your brokerage account may allow you to sweep all cash into a money market mutual fund. Fidelity does that, and it is a nice feature. Charles Schwab does not, so you must manually buy and sell shares if you invest with Schwab. The Schwab Treasury Obligations Money Fund yields 2.76%, which can be worth the effort.

Now that we have interest rates above one percent, you can pick up extra earnings by ensuring your cash holdings earn interest. The 2.5% to 2.8% current paid by money market funds will increase as the Fed continues to increase interest rates.
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