It depends on how long you plan on holding the cash. If it is just “parked” while you look for investments, you may want to leave it in a money market or very short-term CDs/government bonds. If it’s a big cash reserve and you don’t know if or when you’ll need it, consider laddering bonds or CDs.

Bond funds tend to do well during periods of flat or falling interest rates, but not during periods of rising rates. If you invest in a bond fund, consider the maturities of the underlying bonds and keep an eye on interest rates!

Thanks for the insights. I was wondering what to do with the money I have lying around waiting to be invested! I was thinking it might be a good idea to put it in a bond ETF until I find an opportunity to purchase. Vanguard has a really good total market bond fund (BND). I was wondering what you thought about this type of strategy. Should I just hold on to my cash?

Thanks!

To figure out when a company is on sale, you must first figure out its intrinsic value. Intrinsic value is the value of company as an ongoing business, and is equal to that company’s net worth (Shareholder Equity) and the future cash that can be taken out of the business (Free Cash Flow), discounted by your desired rate of return.

Three examples of this calculation are on the Johnson & Johnson valuation, the Coca-Cola analysis, and American Eagle Outstanding.

Once you know the value of the company, you should figure out how comfortable you are with that company’s future and decide what your Margin Of Safety (or discount) should be. Large, stable, industry leaders can be bought with a 25% MOS. Smaller or hyper-growth companies should be purchased with no less than a 50% MOS.

Once you know the value, and you have factored in your desired discount, you can quickly check the stock price to see if the gamblers are willing to sell you a piece of the company (stock) at or below your discounted price.

Check out the above posts and look for a more detailed explanation on Thursday. Hope that helps!