Transcripts

Cash Stash Options

SUSIE GHARIB: No break for seniors this year on rules requiring them to take money out of their IRA and 401k plans. The Treasury and IRS said today they will not change those required distributions for 2008. The decision is a huge disappointment for many Americans age 70 1/2 and over who've seen their retirement funds torched in the market meltdown. They must take out money based on the value of their accounts at the beginning not the end of this year. Our tax guru, Kevin McCormally of Kiplinger's, says now that the decision has been made, you need to act quickly. He suggests contacting your IRA or 401k custodian tomorrow morning. There's a 50 percent penalty if you don't take the required minimum distribution and it has to be done by close of business December 31.

JEFF YASTINE: Whether or not you are in retirement mode, you are most likely shell-shocked as a result of the bear market. Making new investments is probably not at the top of your agenda. But safeguarding what cash you have probably is. So in times like these, where do you stash your cash? New York bureau chief Scott Gurvey went to find some answers.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: First stop, the mattress store. They wouldn't let us in. We figured there would be a line of people looking for a place to stuff currency but in fact the store was empty. So where is the money? With interest rates near zero, bank accounts are yielding virtually nothing. Money market mutual funds are yielding virtually nothing as well, although they are still the choice for maximum liquidity. If you're looking for yield, experts recommend government insured bank certificates of deposit. You should also consider TIPS, Treasury inflation protected securities. With TIPS, the principal is adjusted up with inflation, down with deflation. But you won't get back less than the original principal if you hold to maturity. TIPS usually yield less than regular Treasuries. But Joe McAlinden of Catalpa Capital says because of fear of deflation, the TIPS yield is currently greater.

JOSEPH MCALINDEN, CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: I would much rather own TIPS than coupon Treasury bonds. Over the next three to five years I believe there will be inflationary consequences of all of this stimulus, not the deflation that people are worried about. Because people are worried about deflation, the TIPS have become very, very cheap and they are attractive I think for many investors.

GURVEY: If you are still scared of equities, you will not be happy to learn that many of the advisers we talked to say you may regret sitting on the sidelines. Christine Fahlund of T. Rowe Price suggests putting your toe in the water.

CHRISTINE FAHLUND, FINANCIAL ADVISOR, T. ROWE PRICE: We suggest that you consider how you're feeling right now and that one of the best ways to go back in is gradually. So you have the anxiety. The markets are way down now. So theoretically we like to buy things on sale. Now would be a good time to put a little of your cash back in the market.

GURVEY: And McAlinden recommends you have enough cash on hand to cover expenses for three to six months. But that's it.

MCALINDEN: I don't recommend the mattress for a variety of reasons including smoking in bed and burglaries and other things that could go wrong with that. But then all money beyond that that one has for long-term investment purposes should be in long-term assets and this may turn out to be the buying opportunity of a lifetime.

GURVEY: While most experts are confident a turnaround is coming, they are not predicting an exact time or date. So you may take your lumps from the money you are sleeping on or from the market. Your choice. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.