Dear Dr. Don,
I have come into a very substantial amount of money and need advice on protecting it. I understand certain financial institutions can set up a CDARS or a MMAX. Is there a vehicle you would recommend?
-- Eric Aggregate
I've discussed the Certificate of Deposit Account Registry Service, or CDARS, in past columns, but wasn't aware of the competing product, Money Market Account Xtra, or MMAXs. Both programs provide FDIC-insured coverage many times over the standard insurance limit without requiring the depositor to establish accounts with more than one bank.
The difference in yields between a money market account and a certificate of deposit can be substantial, especially if you're looking at longer-term maturities in the CD. The Bankrate feature "6 ways to insure excess deposits" explains these programs and adds several more into the mix. Public funds typically require collateralized deposits and you could discuss that approach with a banker as well.
Protecting a substantial sum of money depends on more than just safety of principal. You also need to consider protecting the purchasing power of that money over time. Inflation seems relatively benign at present, but inflation erodes the purchasing power of your investments over time.
Anyone with a substantial sum of money to protect should spend some of it hiring a professional financial adviser. You may object to an asset under management, or AUM, approach where you pay a percentage of assets each year to the adviser. But there are other compensation models, including having an adviser on retainer.
If you don't care for that advice and want to invest on a do-it-yourself basis, I think you should consider Treasury Inflation-Protected Securities, or TIPS, as part of your portfolio. It's hard to say how much you should invest this way, since I don't know more about you and your finances. You can invest in TIPS through the TreasuryDirect program.
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