Investors looking to put a sizable amount of money in a protected place might want to consider a cash management account, which can help with money management. But just what is a cash management account? That is covered below, along with other ways to invest beyond common savings accounts.
A nonbank account, generally favored by those seeking a safe, easily accessible place to keep a relatively large sum, is referred to as a cash management account. It also targets those who like having all their money in one place to more readily take advantage of investment opportunities.
Holders of a CMA need not switch among accounts or apps. The accounts can be used in place of, or in addition to, traditional checking and savings accounts, although many combine some elements of both.
One can commonly establish a cash management account through a Robo-advisor, mobile app, or online firm. While brokerage firms are frequently used for such accounts, an online savings account might offer higher rates. Investors should compare options.
CMAs share features with other types of accounts, but with some key differences:
Pros:
Cons:
While a near-perfect fit for some, a CMA does not work for everyone. For one thing, some people prefer to keep their bank accounts independent from their investments. Also, not everyone wants to do all their banking digitally, either online or through a mobile app.
Anyone considering opening a cash management account should ask themselves:
Because some brokers offer CMAs, which can be linked to a brokerage account, investors may be able to take advantage of opportunities more easily and quickly. Also, funds can be kept safe for as long as they are deposited.
What to look for in a CMA prospect:
Those interested in opening a cash management account should shop around regarding all the above.
Opening a CMA is like opening any other kind of online bank account. The process requires filling out an application, then funding the account, usually by electronically shifting funds from an existing bank account. If applicable, the investor will get a debit card and checks.
Those who have extra cash to invest have options beyond cash management and high-yield savings accounts. They can, for example, add alternatives to their portfolio holdings. Essentially encompassing assets other than stocks or bonds, alternatives such as art and real estate are increasingly popular as ways to potentially guard against inflation and stock market volatility.
Consider the alternative investment platform Yieldstreet, which offers a private market Individual Retirement Account that can also help diversify holdings. The private market program offers a wide selection of alternatives as well as easy rollovers.
Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially compelling gains these investments presented were also limited to these groups.
To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other alternative investments.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
Depending on one’s financial situation, a cash management account might work as a safe, accessible place to deposit a relatively large amount of money.
And just as CMAs offer an alternative to traditional savings and checking accounts, private-market IRAs can serve as alternatives to stocks and bonds in modern investment portfolios. Incorporating such alternatives might be a smart way to diversify one’s holdings.
All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.