Put cash to work with short-term bond ETFs

• Investors interested in putting idle cash to work may consider short-term bond ETFs.
• After the Fed’s rate hikes, cash that will go unused immediately may be able to earn higher yields than any time since 2007.¹
• Short duration bond ETFs can potentially add more income while helping you diversify where your short-term assets are held.

Looking to get more out of your cash? Consider short-term bonds, which are currently offering higher yields than any time in the past 15 years.² Investors may be able to invest in short-term bonds with ETFs to potentially earn more income with cash they don’t need in the near future.

Americans are sitting on over $17.6 trillion in bank deposits with an additional $4.8 billion in money market funds.³ An investment in fixed income funds is not equivalent to and involves risks not associated with an investment in cash or cash equivalents. That said, yields on savings accounts may not keep up with interest rate increases, and certainly trail those currently available in various bond ETFs.

So how much cash should you put to work in different investments? For many, it may help to think of your cash in layers, and segment it based on how soon you will need to use it. For daily cash needs to pay for living expenses like gas and groceries, bank accounts are the most flexible. These accounts are also insured, up to $250,000 per account, by the Federal Deposit Insurance Corp.

For any additional cash that will go unused immediately, however, individuals have options beyond bank accounts, including certificates of deposit (CDs)⁴, money market funds, U.S. Treasury bills and short-term bond ETFs. 
Given events in the banking sector in March 2023, diversifying exposure to any single financial institution can help with risk management.

Investors interested in putting idle cash to work may consider these short-term bond ETFs:

• The iShares 0-3 Month Treasury Bond ETF (SGOV) invests in Treasury bonds with less than or equal to 3 months remaining until maturity.
• The iShares Short Treasury Bond ETF (SHV) invests in Treasury bonds with less than 12 months remaining to maturity.
• The iShares Treasury Floating Rate Bond ETF (TFLO) invests in floating-rate U.S. Treasury bonds, whose interest payments adjust to reflect changes in interest rates.

Historically, bonds have served as a way for individuals and institutions to invest idle cash. The other main roles of fixed income investments are:

• Boost income potential: Rather than rely solely on capital appreciation to grow your portfolio, bonds can help provide regular income as an important source of return. Even U.S. Treasury bonds are now yielding 4-5%, investment grade corporates 5-6% and high yield or emerging markets bonds 7-8%.⁵ This income can potentially be a consistent source of returns for portfolios.
• Equity Market Diversification: During rising rate environments, the goal of the Fed is to reduce inflation and one option to do so is raising interest rates, but rate hikes may trigger a recession or a stock market downturn. Bonds have generally tended to outperform when stocks decline⁶, since they pay a contractual rate of interest and a flight-to-quality may occur — meaning investors turn to less risky investments and cause the prices of Treasury bonds to increase. (A bond’s price moves in the opposite direction of its yield.)

Stepping out of cash and into the world of bond investing doesn’t have to be intimidating. Whether you are an experienced investor or reallocating to fixed income, the BlackRock Bond Pyramid can help you think through the role of bonds. This framework articulates the purpose of bonds and can help you align your goals with bond investments. iShares bond ETFs offer over 115 funds to help investors pursue their fixed income goals and objectives.