The Dow fell below the 20% mark on Monday, joining the S&P 500 in bear market territory and capping off an abysmal slide since the peak at the end of 2021.
The boom that followed March 2020’s COVID crash is over — and many of the investors who joined because of stimulus payments, meme stocks, or free trading are experiencing their first patch of turbulence.
The good news? The market may look bad, but there are actually — for the first time in a while — some interesting places where you can put your extra cash to work. (If you’re lucky enough to have some.)
Here are five strong contenders:
Paying off debt: The Fed has made the stock market look less enticing. But it’s also made paying off debt look a lot more attractive, largely because rate hikes on debt that takes their cues from the Fed will make your interest rates go up.
One way to avoid that spike is paying down the debt. But there’s another upside to debt reduction: The return is guaranteed — unlike the fickle stocks. For example: Paying off your 6% car loan is the same as making 6%. The return is even bigger if you’ve loaded up your credit card and are paying your friends at American Express 20%.
Online savings accounts: High-yield savings accounts are back! The Fed’s rate hikes and stiff competition have forced online banks — probably not your brick-and-mortars, sadly — to boost their Annual Percentage Yield (APY) to well over 2%. Not bad for FDIC-insured accounts that don’t lock up your money for months on end. And future Fed hikes will see that figure rise even further.
CDs: The rise in online savings accounts may have made CDs less attractive these days, but they do pay even more. A year-long CD can get you over 3%. Yes, a year is a long time. But if you need that money sooner, you can withdraw. Sure, you’ll likely forego the interest. But you are still technically liquid (check the terms of your CD, of course).
I-bonds: They’ve been one of the best-kept secrets in personal finance, probably because you can’t get them from brokers or other third-party sources. They come from the Treasury and its cumbersome website (word of advice: do NOT forget your password; I was on hold forever.) But they do pay incredible rates and are backed by the United States government just like the dollar. The rates are set twice a year based on inflation metrics. That’s usually not very high but it’s 9.62% right now. Caveat: If you withdraw before five years, you lose the last three months of interest. (Hold for 18 months, get 12 months interest and so on). There’s also a $10,000 I-bond limit per year per person.
The stock market? Well, are you a long-term investor or a short-term investor? Channel your inner Warren Buffett: If you believe stocks will be strong in the long-term and have money you don’t need to touch, putting cash into stocks might be a good move. The bottom line: Stocks are at December 2020’s prices and if you expect an all-time high once again someday, you’re getting a deal. You could try to time the bottom (maybe another 14% decline!), but why bother? It doesn’t actually matter that much.
It’s obviously hard to figure out what to do when the market is so unappetizing. But if these five places or some combination can help offset the historic inflation that’s essentially giving you negative returns, it’s probably good to give them a look.
Originally published on Yahoo Finance.