Since starting my business three years ago, I’ve run into some problems that are actually pretty nice to have.
One of the reasons I’ve been fairly successful is that I’m always trying to compound my earnings.
That is, I always want my money to make more money.
Rather than getting taxed to death on my extra income and spending the rest on junk I don’t need, I park a good chunk of my side business income into tax-sheltered accounts and buy passive income investments.
The “nice-to-have” problem with that? I often have a lot of cash on hand because I can be pretty picky about what stocks and ETFs I want to buy and when.
And of course, holding a ton of cash is a huge mistake, because you wind up paying what investment legend Warren Buffett once called a “silent tax” on everything: inflation.
Your pile of cash may not vary, but the amount you can buy with it does – sometimes quite rapidly … remember those 6-7% months (annualized) coming out of the COVID-19 pandemic?
So what the heck do you do with all that cash if you don’t want to put it at risk but you also don’t want to pay the inflation tax?
Let’s go over that now.
1 big dividend ETF you should get to know
People hold onto cash for a number of reasons.
Maybe they get psychological comfort from knowing there’s some financial padding below them. Evolution has trained our brains to see danger everywhere.
Or maybe they just have no idea what to do with it.
But the most important thing to remember is this: You may not be spending your cash, but you are still effectively losing money.
I have good news, however.
There’s actually a pretty simple solution that gives you the opportunity to collect substantial dividends while assuming almost zero risk.
I do understand the instinct to build a big pile of cash to sit on.
For most people’s lives – especially older folks – the mantra has always been “cash is king“.
But there is a right way and a wrong way to handle it.
Let me give you one example.
I know a divorced woman who lives on her own, and in spite of being well into retirement age, she has chosen to keep working.
As a part-time teacher, she loves her job … and she also loves the financial breathing room that comes with having a second income on top of her pension.
Given her expenses are low and her income is (relatively) high, she’s managed to squirrel away close to $50,000.
The only problem: she just has it sitting in a chequing account earning almost nothing.
She told me that she just likes having that money there in case something happens.
I told her that was nuts.
At current interest rates, she could have been earning $2,000 a year in dividend payments on what is almost a zero-risk investment.
And fixing the problem would only take 5 minutes.
Where I park cash without losing money
Now if you’re an investing veteran, you’ll probably know this already.
But I’m also finding out lately how little people know about investing basics.
Including how to protect your loose cash from inflation.
What I do is place my money in ultra short-term Treasury Bills (or T-Bills).
Basically, T-Bills allow you to lend your money to the government for 1-3 months … and collect interest for doing it.
“Buying T-Bills” might sound a little intimidating to a newbie, but it’s a snap nowadays thanks to exchange-traded funds (ETFs).
ETFs are bought and sold like stocks, which means you can add them or dump them whenever you want (as opposed to buying, for example, stuff like the Guaranteed Income Certificates we have in Canada).
Put another way, if you need the money now, you can get it any time the market is open (or in after-hours trading, which is increasingly popular).
So which ETF do I buy to keep my money safe from the voracious inflation monster?
Introducing: T-Bill ETFs
My favorite (and one of the most popular) short-term T-Bill ETFs is the SPDR Bloomberg 1-3 Month T-Bill ETF (ticker: BIL).
BIL, which has been around for almost 20 years, has effectively the same price as it did on Day 1.
And it currently pays a dividend yield of 4.06%.
Now that yield will fluctuate up and down based on where the Federal Reserve sets its benchmark interest rate.
But the money you park there is super safe whether it’s a bull or bear market (the latter of which I wouldn’t be surprised to see in 2026).
Not in the USA or interested in T-Bill equivalents from other countries?
Here in Canada, we have a similar product in the Global X 0-3 Month T-Bill ETF CAD, which has the ticket symbol CBIL.
Check your local markets to see if one exists where you are.
Most people’s understanding of investing begins and ends with “buying stocks”, which is a real blind spot.
Sometimes it makes sense to hold equities (e.g. when governments pumped easy money into the system in response to the COVID-19 pandemic).
Sometimes it makes sense to play it safe (i.e. when governments tried to put the toothpaste back in the tube after all the easy money caused inflation to skyrocket).
Point being, knowing where to park your money in a safe place while still surviving an attack by the inflation monster is priceless knowledge.
Where do you park your loose cash?
Do you think there’s a recession on the horizon?
Let me know in the comments!