Cash vs. Dividend ETFs vs. Bond Funds: Why T-Bills Are My Favorite "Dry Powder" Right Now | The Motley Fool

I love the idea of "dry powder." I love it a little less when I notice my IRA "cash" is earning approximately a shrug. So I went looking for a smarter parking spot -- something that doesn't swing around in value like your average index fund , is easy to sell when opportunity shows up, and pays more than a sleepy sweep account. I'll admit that I didn't necessarily arrive at these three characteristics in that order, and the results weren't exactly what I expected. Here's what I considered, what I rejected along the way, and what finally clicked. Image source: Getty Images. From risky dividend bets to rock-solid government paper Step 1: Decide what "dry powder" is supposed to do. This definition isn't as easy or clear-cut as it sounds. Dry powder has one job: be there when you need it. When one of my favorite tickers goes on fire sale, I want to have some investable funds ready to take advantage of that opportunity. And I don't like market timing , but you never know. The stock market is known to take occasional dips, even when the economy looks solid. So it could make sense to hold back some of my S&P 500 ( ^GSPC +0.64%) investments in vehicles like the Vanguard S&P 500 ETF ( VOO +0.63%) and State Street SPDR Portfolio S&P 500 ETF ( SPYM +0.64%) funds. I might be able to buy them at a better price in 2026 . I'm never going all-in on that idea, but a modest portfolio adjustment makes sense. That means the best "cash stand-ins" are the ones least likely to be down on the exact day you want to redeploy. VOO and SPYM don't do this job, since they're directly tied to the broader stock market's real-time price moves. The ideas I flirted with (and why they didn't make the cut) 1. Dividend stocks (tempting, but no) A dividend stock can still get crushed on bad news, recessions, or sector trouble. That's fine for long-term investing but terrible for "money I might need next week." Solid dividend payers can be helpful in a diversified portfolio, but they don't do the job I'm trying to fill here. Verdict: Dividend investments add too much single-stock risk for a portfolio component I'm calling a "cash equivalent." 2. Dividend ETF -- my "useful" near-miss I seriously considered the popular dividend-oriented fund Schwab US Dividend Equity ( SCHD +0.58%) for a minute. It's a diversified, shareholder-friendly fund with more than 100 individual holdings, and it pays a real distribution. Current 30-day yield: 3.83%. The expense ratio is a Vanguard-level 0.06%. If you want a long-term equity holding with an income tilt, it can be a solid choice. But here's the catch: SCHD is still 100% stocks. If the market drops, SCHD can drop too -- sometimes a lot. It posted sharp price cuts in the early COVID-19 shutdown phase, another deep drop in the inflation crisis of 2022, and a third S&P 500-level...

Preview: ~500 words