Where To Invest A Year-End Stash Of Cash

Idea 1: Short-term bonds and dividend-paying stocks.

The head of investment strategy at SoFi recommends putting half that cash into dividend-paying US stocks and half into short-term government bonds. They’re betting that the Federal Reserve (Fed) will end up cutting US interest rates by more than investors are anticipating, which will bring down short-term bond yields while boosting their prices.

If the Fed does that, the economy should hold up pretty well, so hanging onto some stocks should prove fruitful too. The focus on dividend-paying shares is all about valuation: the S&P 500’s dividend yield is around 1.3%, while there are baskets of dividend-paying stocks offering much higher potential yields.

How to implement the idea via ETFs.

The WisdomTree US Quality Dividend Growth Fund (ticker: DGRW; expense ratio: 0.28%; dividend yield 2%) and Global X S&P 500 Quality Dividend ETF (ticker: QDIV; expense ratio: 0.2%; dividend yield: 2.75%) could fit the bill as far as stock exchange-traded funds go. A higher-octane option is the Global X S&P 500 Quality Dividend Covered Call ETF (ticker: QDCC; expense ratio: 0.35%; yield: 2.75%), which supplements its yield with income from writing call options on its sister ETF QDIV, pushing its annualized yield to about 10%.

On the short-term bond side of things, the Schwab Short-Term US Treasury ETF (ticker: SCHO; expense ratio: 0.03%; yield: 3.9%) is a low-cost way to gain exposure.
While this feels like a relatively defensive move, it’s hard to argue with the logic. A lot of investors have declared victory in achieving a recession-averting “soft landing”, and this strategy at least helps you keep a foot in either camp if things don’t quite go as smoothly as hoped.

Idea 2: Gold.

A portfolio manager for BlackRock’s Global Allocation Fund sees a modest allocation of gold – between 2% and 5% – as the right move to make. It was an inconsistent hedge against inflation in 2021 and 2022, sure, but it has made up for that in the past year, becoming one of the market’s best-performing assets. This year, gold has been boosted by moves in the US dollar and interest rates. And looking ahead, its “reliable store of value” characteristics should come to the fore: central banks keep buying it up, along with investors who are worried about governments racking up huge, arguably unsustainable, debts.

How to implement the idea via ETFs.

The SPDR Gold MiniShares Trust (ticker: GLDM; expense ratio: 0.1%) and iShares Gold Trust Micro (ticker: IAUM; expense ratio: 0.09%) offer ways to invest directly in physical gold. But you might prefer indirect gold exposure via gold mining companies. And if that’s your jam, the VanEck Gold Miners ETF (ticker: GDX; expense ratio: 0.51%) is one way to get that.

While I can’t fault the argument for having a small amount of gold in your long-term portfolio, the idea isn’t exactly thrilling. It’s a zero-yielding asset, and if I’m looking for safety, other assets offer some intrinsic return. Plus, with the price of an ounce of the yellow metal already having rallied to all-time highs, it’s tough to be convinced that there’ll be lots more potential upside soon. That doesn’t mean it can’t happen, though.

Idea 3: Chipmakers (not the ones you’re thinking).

This isn’t an AI play. Shares of AI-focused chipmakers have gone to the moon, leaving their industrial- and automotive-focused peers firmly on the ground. But according to the CEO of Causeway Capital Management, it’s about time for a cyclical rebound. The firm sees a likely recovery in orders next year in robotics, manufacturing, and automation, plus rising demand for data centers – all of which rely on industrial semiconductors. What’s more, the companies that make those chips generate strong cash flow and have modest amounts of leverage, making them a compelling investment.

How to implement the idea via ETFs.

AI and robotic-themed ETFs will have some overlap with the AI chip stocks, but they may still be the easiest way to buy in. The ROBO Global Robotics & Automation Index ETF (ticker: ROBO; expense ratio: 0.95%) limits semiconductor stocks to 10% of the portfolio. You might also consider the Global X Robotics & Artificial Intelligence ETF (ticker: BOTZ; expense ratio: 0.68%). But be warned, its exposure to semiconductors comes solely from Nvidia.

This is more my speed: I like the idea of underappreciated, underestimated stocks that already have solid cash flow dynamics. And there are a lot of subsectors likely to drive growth, so I’m probably not relying on a single end-market or geography to make this play out. On the downside, there are no ETFs that give me the kind of direct exposure I’d like, which might mean it’s worth doing the extra work to identify the individual companies that are set to benefit.