Having a plan or strategy is critical. Without a plan, you’re just picking investments and chasing today’s yield, and that’s not always the most profitable bet, nor the safest. Ironically, many without a plan will simply purchase CDs, shopping to find the best-paying interest rate. Most people feel safe with this approach because CDs are very safe and typically short-term, so there’s no problem with liquidity (refer to Chapter 2). But if interest rates start to fall, this approach results in a major risk.
How do you develop a strategy? If you haven’t put one together already, I would suggest getting some help.
Your strategy or plan has to work within the guidelines of your investment policy, so if that policy needs clarification or work, now’s a great time. After you define and meet your liquidity needs, you can look at designing your portfolio — also known as your reserve fund.