Is It Sensible to Keep Three Months’ Operating Capital in a High-Yield Savings Account?
As a business owner, the decision about where to keep your operating capital can weigh heavily on your mind. For me, having three months’ worth of operating expenses tucked away in a high-yield savings account (HYSA) provides a sense of financial security that is invaluable. It allows me to focus on growing my business without the constant worry of cash flow interruptions.
However, as I reflect on my current situation, I find myself questioning whether this approach is still the best strategy. After experiencing a steady stream of profits for the past six months—thanks to successfully navigating a prolonged period of merely breaking even—I’m starting to wonder if it’s time to take a different route.
In addition, with the stock market currently flourishing, I can’t help but notice that my cash reserves are largely untouched, waiting patiently while opportunities for growth abound.
It’s worth mentioning that my “high-yield savings account” isn’t a typical one. Instead, I have my capital invested in an ultrashort Treasury bill ETF that is held to expiry (SGOV). This investment is functionally similar to a HYSA, offering a risk-free option, while also yielding around 5%.
As I evaluate my financial strategy, I’m left pondering: am I being prudent by maintaining this safety net, or am I missing out on more lucrative opportunities? Balancing security with growth potential is a challenge every business owner faces. What are your thoughts?
2 Comments
It’s great to hear about your recent success in the business! Managing your finances with a solid operating capital is crucial, especially after experiencing a challenging period. The decision to keep three months of operating capital in a high-yield savings account (HYSA) or, as you’ve clarified, an ultrashort Treasury bill ETF (like SGOV) is strategic, and not uncommon among business owners seeking security during uncertain times.
Understanding Your Choice
Keeping cash reserves in an accessible yet interest-bearing vehicle is essential for many reasons:
Mental Security: One of the most important aspects of running a business is ensuring you have the peace of mind to make decisions without undue stress. Having that safety net allows you to focus on growth rather than immediate survival.
Liquidity: Keeping capital liquid means you can respond quickly to opportunities or unforeseen expenses. This flexibility can be a substantial advantage in a volatile market.
Current Yield: At a 5% return in an ultrashort T-bill ETF, you’re earning a reasonable yield compared to traditional savings accounts. This makes your money work harder while still retaining the safety and liquidity you need.
When to Reassess Your Strategy
While your current setup is serving you well, it’s wise to periodically reassess your financial strategy as your business evolves. Here are a few considerations:
Growth Opportunities: If your business is thriving and you anticipate this trend to continue, think about whether some of your operating capital could be allocated towards investments that can generate higher returns. This can include reinvesting in your business, equity investments, or other asset classes that align with your risk tolerance.
Diversification: Consider diversifying a portion of your cash reserves. Although your current choice appears safe, investing some funds in a balanced portfolio could potentially yield higher returns over time, especially given the booming stock market you mentioned.
Emergency Fund Reassessment: Align your operating capital with your business needs. If your revenue has stabilized, you may not need three months of operating capital. Evaluate whether this amount is necessary for your peace of mind or if you could reduce it slightly to take advantage of other investment opportunities.
Practical Steps Moving Forward
Evaluate your Cash Flow: Examine your monthly expenses and income projections. If you’re consistently profitable, you might find you can safely reduce your operating capital while still maintaining an emergency fund.
Consider Investment Vehicles: Look into other investment vehicles that still prioritize capital preservation, like short-term bonds or diversified mutual funds, which might offer better long-term growth potential without excessive risks.
Consult a Financial Advisor: If you’re uncertain about how to best balance liquidity with growth, consider speaking with a financial advisor who can provide tailored advice based on your business model and financial health.
Conclusion
In summary, you’re not crazy for keeping three months of operating capital in an ultrashort T-bill ETF; it demonstrates prudent financial planning and a focus on stability. However, as your business matures and your financial situation evolves, revisiting your cash management strategy to find a balance between security and growth can help you maximize your resources. Always stay informed about market conditions and adjust your strategies as necessary to position your business for continued success.
It’s great to see you taking a thoughtful approach to your financial strategy! The balance between maintaining a safety net and seeking growth opportunities is indeed a complex but crucial aspect of business management.
Having three months’ operating capital in a high-yield savings account, or in your case, an ultrashort Treasury bill ETF, can provide peace of mind and stability, especially during unpredictable economic times. It’s important to remember that while the current market might be thriving, economic cycles can shift, and having immediate access to liquidity can safeguard against unforeseen challenges.
That said, now could also be an ideal time to reassess your risk tolerance and long-term financial goals. If you’ve established a consistent profit margin and feel confident in your cash flow forecasts, it might be wise to consider diversifying your investment strategy. Allocating a portion of that capital into growth-oriented investments, such as equities or index funds, could lead to greater returns—though it’s essential to ensure that any move you make aligns with your overall business objectives and your capacity for risk.
Additionally, you might explore whether maintaining some liquidity in your current strategy alongside a smaller allocation toward growth investments could strike the right balance between security and opportunity. Engaging with a financial advisor can provide personalized insights tailored to your business’s unique circumstances.
Ultimately, trusting your gut while remaining open to new opportunities is key. It’s inspiring to see you evaluate your financial health and strive for both security and growth—best of luck as you navigate these decisions!