Surplus Cash Management Strategies?
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  1. #1
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    Default Surplus Cash Management Strategies?

    I've been talking to the bank about opening a CD to store extra cash, as the checking account is earning no interest and thought it would be smart for it to be at least making something? They came back with a variety of options. I'm new at actually having a surplus to work with so I'm confused about this, but the way the banker is talking, businesses are very much into doing this. (Might explain why it takes so long to get paid-the money is elsewhere!)

    #1-Putting it in a CD-my bank is paying about .5% interest on CD's-however, they said they can get me a CD from a big name bank that would be making 1.5% interest. They said they would be making no money on this, but want to do it to keep the relationship with me. Totally safe, FDIC insure.

    #2-Putting it in a mutual fund, comprised of 60% municipal bonds, and 40% stocks. Its roughly been returning about 7%. Again, no charge to do this, but said the fund or their broker charges about 1% of the earnings. Said its a more conservative mutual fund, but there is a risk of loss with this option.

    #3-He started to get into this, but probably could see I was getting overwhelmed-he was saying about putting almost all my cash in one of the above, and setting up a line of credit. The way I understood it, as income comes in, you use it to pay bills-if you come up short, you use the line of credit till you get the income in. That way, more of your money is working for you.

    I guess the hardest thing for me to grasp is how the bank is supposedly not making money on this-he pretty much said they want to keep the relationship with me, and for me to be happy, and if down the road I need a loan or something else, they will make money off of me then.

    Banker seems to be putting no pressure on, whatever I want to do. He said it wouldn't be a problem to get the funds back out if I need it if sales get slow, want to buy some equipment, etc.

    Thoughts?

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    decide first if its investment money (ie the mutual fund) or surplus cash (has to stay safe as you are going to want it in the short term). Successful investing requires a long term view, managing surplus cash a short term one

    Investment is a long discussion, surplus cash is short. The mutual find will yield more overtime (perhaps) but with oscillations....might be down substantially just when you need it.

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    Learn what happens to these returns in a period of rising interest rates.

    When you buy bonds, and then interest rates increase, the value of the bonds is reduced.
    However if you hold to maturity you still get full value if the bond issuer does not default.

    Thus you have exposure to several types of risk.

    Then a full understanding of all fees and expenses is required. Sometimes these will eat all or more than all of your returns.

    I would never invest through or at a bank. Go to Vanguard.com and get substantially lower fees.
    And your banker estimate of investment costs sounds very wrong.

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    Not much use to you ,but in the UK it seems pretty difficult to find anywhere to put surplus cash and get worthwhile interest ,especially since the 2008 crash and interest rates falling to almost nothing.

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    Quote Originally Posted by Machinery_E View Post
    Thoughts?
    Good to have a 'liquid' reserve, but before you do anything else:

    1) PAY DOWN ANY AND ALL DEBT !

    2) Build a reserve that lets you buy the next machine (house, car, pair of shoes..) without need of new debt.

    No matter what returns are out there in any given economic era, interest on debt nearly always costs more than you can earn. Old, long-running low-interest home mortgage rare, but the only exception I can recall the last 50+ odd years. Even so - those can be paid-off advantageously, too.

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    You would probably have a significantly better return with real estate or buying and selling stuff on craigslist.

    Stimulate the economy, make profits and have tax write offs!

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    The fancy term is Treasury Operations.


    Treasury management - Wikipedia

    Banks may or may not disclose the prices they charge for Treasury Management products, however the Phoenix Hecht Blue Book of Pricing may be a useful source of regional pricing information by product or service.
    I suggest getting Motion Guru involved in this dialog

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    You want to be very careful where you put your money in the Trump era. He wants to repeal the law requiring investment people to put their client's interest ahead of their own. Make America great again, huh?

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    Other thing is the rates of return, yeah buying machinery ties the money up, but you have to buy some really shit machinery to not generate a 5% return!

    Look at your process and consider what could be improved - what could make life easier.

    Don't get me wrong you want some saveings - a rainy day fund, but its really easy to slip into gotta save everything spend nothing and end up going backwards in life. Having money in the bank does not make every day life all that much easier.

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    Be a man- toss it in the markets.
    What's the worse that can happen.....

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    What the fuck is Surplus Cash??? Sounds like an oxymoron to me.

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    One word "Dividends"

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    Putting all your working capital into any sort of investment product (interest rate ~1%) and then running your business off of a line of credit (interest rate ~8%) is perhaps the single stupidest strategy I have ever heard. I mean, good for the bank, so offensively bad for you advice that I wouldn't just say no, I would pull all my money from that bank. Jesus.

    Nothing wrong with dumping money you don't need for six months into a CD, unless you suddenly need it. Then you get whacked for early withdrawal. You might not think you'll need it for six months, but in three what happens if you need to replace a spindle, or there's a perfect almost new machine that comes available for half price, but you have to have it paid for within two weeks of the auction?

    Surplus cash is just cash that you haven't figured out something more profitable to do with yet.

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    LOL When I get some I'll worry about what to do with it.

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    Quote Originally Posted by Trboatworks View Post
    Be a man- toss it in the markets.
    What's the worse that can happen.....
    It can go down but it always goes back up if you have the balls to wait. I was working for a rich guy. when the market had that little crash in about '88. The morning after we were a the airport getting on his Piper Aerostar and I asked him about it, he just laughed and said it was a great opportunity to buy, you only lose if you sell.

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    Quote Originally Posted by Doug View Post
    You want to be very careful where you put your money in the Trump era. He wants to repeal the law requiring investment people to put their client's interest ahead of their own. Make America great again, huh?
    O NOOOOOOO! Trump is going to take all my money! You lefties crack me up. All the lefty media predicting a stock market crash if he gets elected. Stock market goes up and up and up

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    Quote Originally Posted by moonlight machine View Post
    It can go down but it always goes back up if you have the balls to wait.
    Balls? Or stupidity?

    Don't tell me I didn't REALLY lose a dime on over 150,000 shares of "Worldcom" @ an average of 3.70/share + when Bernie Ebbers went to prison... and it soon became worth ZERO.

    How long should I wait, now?


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    "Municipal Bonds"...Like bonds from municipalities...Like Orange county,
    Detroit city...

    All went Bankrupt, and you get nothing.

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    Quote Originally Posted by Doug View Post
    You want to be very careful where you put your money in the Trump era. He wants to repeal the law requiring investment people to put their client's interest ahead of their own. Make America great again, huh?
    To be fair.. those Laws never were enforced to the benefit of 'small holders'. Not ever, since G. Washington's time.

    All he'll accomplish - if even it comes to pass at all - is to cut the cost of the complicated series of expensive charades and masquerades that have been PRETENDING to protect us while making it all WORSE with each passing decade.

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    Quote Originally Posted by Monarchist View Post
    Balls? Or stupidity?

    Don't tell me I didn't REALLY lose a dime on over 150,000 shares of "Worldcom" @ an average of 3.70/share + when Bernie Ebbers went to prison... and it soon became worth ZERO.

    How long should I wait, now?

    Easy to lose if you focus on 1 stock, a range of stocks will not all have a Bernie Ebbers.

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