In this brief conversational video, the hosts discuss why holding cash may be a hidden risk in a low‑interest‑rate environment and explore higher‑yielding alternatives. They recommend several asset classes—municipal bonds for tax‑free income, master limited partnerships (MLPs) that own pipeline infrastructure, business development companies (BDCs) that generate income through private lending, and preferred stocks that offer qualified dividend yields. Throughout, they stress a balanced approach: investors should not avoid risk entirely but should be selective, targeting securities that provide strong yields while remaining mindful of market volatility and the need for due diligence.
So cash feels safe right now. What are some better choices, though, than just staying in cash?
I can think of a lot. So how about municipals, tax-free bonds? I like MLP. I like MLPs, which are master limited partnerships.
Yep. Pipeline companies.
I think we're going to have an opportunity in buying these business development companies as well. These are investment companies that generate a lot of income, usually based off of lending, and they have to pay out generally 90% of what they earn in form of a dividend. So yields are high. But they're on sale right now because investors are a little bit worried about things like private lending and some of these other headlines that we've seen. So I think those are areas that we're waiting for settle down that we like. Okay. I also think that in this environment, if interest rates stay low, I think preferred stocks are an area that have really good yield. They pay qualified dividends. I think they're also poised to do well.
Okay, so even though markets are a little bit squishy, it's not about completely avoiding risk. It's just about being a little bit smarter about which risks you're taking and not just being completely as crazy as you can be with risk as you would be in more of a bull market condition. What are your thoughts?
Well, as we like to say, there's always a bull market somewhere.
That's right.
And there's enough securities out that, you know, if you're doing your work, you can find out where the bull market is. But for investors right now that have cash, the bull market is in investments that are actually paying high yields.
Right. That's right. So if a large portion of your portfolio is in— is sitting in cash, I think it's time to revisit why. And as interest rates fall lower, don't be hurt by sitting in cash. It's definitely a risk.
