Cash Alternatives and Investments
While savings tools are ideal for short-term goals, liquidity needs, and preserving capital, investment tools can be better suited for long-term growth and building wealth over time. Knowing when to use each—based on your timeline, risk tolerance, and financial objectives—is essential to creating a balanced and effective strategy.
One of the core principles of investing is simple: the greater the measured risk, the greater the potential for long-term return. That’s why sticking to the fundamentals is key—focusing on quality investments, staying diversified, and maintaining a long-term perspective through all market cycles.
Back to the overview.
Brokered Liquid Deposit (BLD) -
The Wells Fargo Advisors Brokered Liquid Deposit is a cash alternative available through your Financial Advisor. Investors with eligible Wells Fargo Advisors brokerage accounts can use Brokered Liquid Deposit as a cash-management tool and a potential source of yield. Support your financial goals with this cash alternative that balances liquidity with the opportunity for greater yield.
Key benefits include the competitive rates, and same-day access. Deposits will be FDIC insured up to depositor limits.1,2,3
Learn More
Money Market Funds -
Money market funds provide the benefit of pooled investments, offering liquidity for individuals and institutions by conservative alternative for their discretionary money. The goal of a money market fund is to provide a convenient investment, while attempting to maximize current income, preserve capital, maintain liquidity, and provide stability of principal.
Key benefits include the competitive rates, and access within one settlement day. We can explore a number of different money market funds from a variety of financial institutions. Although these funds seek to preserve the value of your investment at $1.00 per share, they cannot guarantee they will do so. These funds may impose a fee upon the sale of your shares. An investment in money market funds is not a deposit of the bank and is not insured or guaranteed by the FDIC (Federal Deposit Insurance Corporation) or any other government agency.
Learn more about How Your Money is Protected.
1Deposits to Brokered Liquid Deposit will be made to Wells Fargo Bank, N.A. Deposits (including principal and interest) are eligible for FDIC insurance up to $250,000 per depositor ($500,000 for joint accounts with two or more owners) in each insurable capacity. If your total deposits at Wells Fargo Bank, N.A., (including those placed directly at the bank, or through an intermediary such as Wells Fargo Advisors) exceed the applicable FDIC insurance limit for that ownership category, the excess deposits will not be insured. Clients are responsible for monitoring their deposits, including deposits held outside of Brokered Liquid Deposit, such as Wells Fargo Bank accounts or Bank Deposit Sweep, to determine if the deposits exceed the FDIC insurance coverage limits in the same ownership category. Wells Fargo Advisors is not an FDIC-insured depository institution. Banking products and services provided by Wells Fargo Bank, N.A., Member FDIC. Deposit insurance only protects against the failure of an insured depository institution and is subject to FDIC rules, including pass-through coverage which requires certain conditions to be satisfied.
2Eligible account types include Non-Retirement and Non-Advisory Brokerage Accounts. Further restrictions may apply to initial deposit dollars. Talk to your financial advisor for more information.
3Brokered Liquid Deposit is not a sweep option. Your cash balances will not automatically sweep from your brokerage account into your Brokered Liquid Deposit. Please review Brokered Liquid Deposit Disclosure.
Fixed income refers to those types of instruments that pay investors fixed interest or dividend payments until they mature. At maturity, investors are repaid the principal amount that they originally invested. These can provide more stability than stocks, even though bonds have historically provided lower returns than stocks. There are a wide variety of products that are available.
Fixed Income Ladder -
Consider building a fixed income ladder by staggering maturities with multiple instruments over a period of time. This can potentially reduce the effect that fluctuating interest-rate environments have on investment portfolios. This can potentially help generate a relatively stable, monthly income stream.
For example, an investor might hold one year of spending needs in cash to cover immediate expenses. Then, they would build a three-year fixed income ladder by purchasing a 1-year, 2-year, and 3-year bond or CD. In Year 1, the 1-year instrument matures and would be expected to provide the income needed for that year. In Year 2, the 2-year instrument matures, and in Year 3, the 3-year instrument does the same—each maturing and is expected to fund that year’s expenses. This is designed to create a reliable stream of income for four years (including the cash reserve), while also creating a diversified portfolio to potentially have less impact from market downturns.
Bond laddering does not assure a profit or protect against loss in a declining market.
CDs, Brokered (Certificate of Deposit) -
Like a bank CD, you lend funds to a bank for an expected period of time through your financial advisor. You receive interest at a chosen frequency, and your principal at maturity. These are FDIC-insured up to $250,000 per institution, offering principal protection. They can be traded on the secondary market but may be sold at a premium or a loss depending on interest rates. Tax efficiency is limited - interest earned is taxable at the federal and state level.
CDs are FDIC insured up to $250,000 per depositor per insured depository institution for each account ownership category and offer a fixed rate of return, while the return and principal value of other investments will fluctuate with changing market conditions.
Treasury Securities (T-Bills, T-Notes, T-Bonds) -
When you invest in U.S. Treasury securities, you are lending money directly to the federal government in exchange for a promise of repayment with interest. These instruments are considered to have lower risk due to the government's credit backing and are commonly used for capital preservation and predictable income. Treasury securities come in three main forms, each with different maturities:
- Treasury Bills (T-Bills): Short-term securities with maturities ranging from a few days up to 1 year.
- Treasury Notes (T-Notes): Medium-term securities with maturities of 2, 3, 5, 7, or 10 years.
- Treasury Bonds (T-Bonds): Long-term securities with maturities of 20 or 30 years.
All Treasury securities offer tax efficiency: interest income is exempt from state and local taxes, though it is taxable at the federal level. This makes them especially attractive for investors in high-tax states seeking low-risk, tax-advantaged income.
Municipal Bonds -
When you invest in a municipal bond, you are lending money to a state or local government to fund public projects like schools or infrastructure. These bonds may be general obligation (backed by taxing power) or revenue-based (backed by project income). The key advantage is tax efficiency - interest is often exempt from federal income tax, and may also be exempt from state and local taxes if you reside in the issuing state. This makes them especially attractive to high-income investors.
Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).
Corporate Bonds -
When you purchase a corporate bond, you are lending money to a company and the return of your principal at maturity. These bonds are used by corporations to raise capital for operations, expansion, or refinancing. Because corporations carry a higher risk of default than governments or banks, they typically offer higher yields to compensate investors for that risk.
Corporate bonds are evaluated by credit rating agencies such as Moody’s, S&P Global, and Fitch, which assess the issuer’s ability to meet its debt obligations. Bonds rated BBB− (S&P/Fitch) or Baa3 (Moody’s) and above are considered investment grade, indicating relatively low credit risk. Bonds rated below BBB−/Baa3 are classified as high-yield or “junk” bonds, which offer higher returns but carry significantly greater default risk. Interest income from corporate bonds is fully taxable at the federal, state, and local levels, offering no tax efficiency.
Investments in fixed income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can cause a bond’s price to fall. Credit risk is the risk that an issuer will default on payments of interest and/ or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Fixed Annuities -
Although not considered fixed income, there are some similarities. When you purchase a fixed annuity, you are effectively lending money to an insurance company for a specified period. In return, the insurer guarantees a fixed interest rate and returns your principal at the end of the term. Fixed annuities offer tax-deferred growth, meaning you won’t pay taxes on interest until you withdraw. At maturity, you can transfer funds into another annuity without triggering a taxable event, continuing to defer taxes owed on your growth, this is also known as a 1035 exchange.
While they are intended to be held to maturity, most contracts allow for penalty-free withdrawals of up to 10% annually. Withdrawals beyond that may incur surrender charges, especially in the early years. Additionally, if you take profits before age 59½, the IRS imposes a 10% early withdrawal penalty, making these products more appropriate for individuals who are planning for or already in retirement.
Wells Fargo Advisors is committed to providing you choices in how you do business with us. We offer a broad range of advisory programs designed to suit the level of involvement you prefer in the day-to-day management of your investments.
Advisory accounts can provide the following benefits:
- Advice on security selection and portfolio construction
- Professional money management teams for oversight and ongoing monitoring
- Predictable costs based on asset level
When deciding on what type of account may be the best fit, we should ask the following questions:
- Do you want ongoing advice and portfolio monitoring?
- Do you want to delegate investment decisions, or remain hands-on with the guidance of your financial advisor?
- Do you prefer an ongoing advisory fee or a commission-based model?
Learn more about our Advisory Services.
Advisory accounts are not designed for excessively traded or inactive accounts and are not appropriate for all investors. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services, including fees and expenses. The minimum account size for these programs is between $10,000 and $2,000,000.
Diversification is a foundational principle of investing, and pooled investment products offer investors a simple way to access diversified portfolios through a single product. These products come in various forms, and differ when it comes to their structure, management style, how they trade, liquidity, and tax efficiency.
Mutual Funds -
Mutual funds are open-end investment companies that pool investor money to buy a diversified portfolio of securities. They are typically actively managed, though passive index-tracking mutual funds also exist. Shares are bought or redeemed directly from the fund at the net asset value (NAV), which is calculated once per day after market close. Liquidity is high, but investors can only transact at the daily NAV.
Learn More
Exchange Traded Funds (ETF) -
ETFs, or ETPs (exchange traded products) are open-end funds that trade on stock exchanges like individual stocks. Most ETFs are passively managed, tracking indexes, though actively managed ETFs are growing in popularity. They offer intraday trading at market prices. Liquidity is generally excellent, especially for large, well-known ETFs.
Learn More
Closed-End Funds (CEF) -
CEFs are closed-end investment companies that issue a fixed number of shares through an IPO and then trade on exchanges. They are usually actively managed, often targeting income generation. Shares trade at market prices, which can be at a premium or discount to NAV. Liquidity varies by fund size and trading volume.
Unit Investment Trusts (UIT) -
UITs are fixed portfolios of securities with a set termination date. They are passively managed—once created, the holdings remain unchanged. Investors buy units at NAV from the sponsor and can redeem them or sell in the secondary market. Liquidity is limited compared to mutual funds or ETFs.
Factor-based investing is a strategy that targets specific characteristics—known as factors—that have historically been linked to better returns or lower risk. Instead of simply tracking a broad market index, this approach tilts a portfolio toward these factors in a systematic way.
Common factors could include a focus on a style like value as discussed above, the size of a company like large-cap, or even a sector of the markets like companies that operate within the Health Care or Technology sector. There are sub-types of factor based investing that include: thematic funds – where the focus is on long-term trends such as technology innovation, faith-based funds that align investments with religious or ethical principles, or even values-aligned investing.
Values-aligned investing -
Values-aligned investing seeks to align an investor’s financial objectives with their personal values. This investment approach may be suitable for those interested in sustainability, environmental or social issues or have specific religious preferences.Those seeking a specific religious preference may explore a faith-based option, as those seeking a more general approach would include ESG factors when building their portfolio. Whether this would be an ESG Mutual Fund or ETF, or individual stocks with a high ESG rating.
An investment’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy. There is no guarantee that any investment strategy will be successful. Risks associated with investing in Environmental, Social, and Governance (ESG)-related strategies can also include a lack of consistency in approach and a lack of transparency inv manager methodologies.
Investing in individual stocks allows you to directly own shares of specific companies, giving you the potential for higher returns compared to more diversified funds and more control over your portfolio. However, it also comes with higher risk compared to those same diversified funds because your performance depends on the success of each company you choose. Typically, we can complement a more diversified mutual fund or ETF portfolio with a portion—or sleeve—of individual stocks for a competitive edge.
Stepping Back: Building a Portfolio with Purpose
As we build your portfolio, it’s important to step back and consider your comfort level with risk and your overall asset allocation. The portion we dedicate to equities may be invested in diversified instruments like mutual funds or ETFs. For the portion we want to allocate to individual stocks, we’ll take a more intentional approach.
For the portion we are dedicating to individual stocks, we want to be diversified across all market sectors. We believe a well-constructed stock sleeve should reflect the broader economy—similar to how the S&P 500 is structured.
Overview of the 11 Sectors
Here’s a brief summary of each sector to guide our stock selection:
Learn more here. Read our Investment Institute report, “Alternative thinking.”
Watch an overview here. An overview that explores ways to enhance diversification of your portfolio beyond the traditional mix of stocks, bonds, and cash.
Successful investing begins with a disciplined approach: maintaining a long-term perspective, avoiding the temptation to time the market, and relying on professional research to identify quality investments. Analysts and fund managers perform ongoing due diligence so that investors can focus on what matters most—having a plan and sticking to it. At the heart of that plan is diversification and an appropriate asset allocation. Spreading investments across different asset classes and characteristics are designed to reduce risk and improve the potential for steady returns over time.
One way to think about diversification is by understanding the key dimensions of your investments. For stocks, company size and investment style play an important role.
Market Capitalization - Represents the average size of companies held in the fund, measured by market cap.
Where Large-cap companies often provide stability, while small-cap firms can offer higher growth potential but with greater volatility.
- Large - $40 billion and up
- Mid - $8 billion to $40 billion
- Small - $8 billion and below
*Approximations, dynamically changes
Investment Style - Represents the types of stocks the funds invest in, based on their financial characteristics and growth potential. Growth-oriented stocks focus on future earnings, whereas Value-oriented stocks trade at prices that may be lower relative to their fundamentals.
- Value - These companies appear to be undervalued based on their financial metrics like low price-to-earnings (P/E) or price-to-book (P/B) ratios.
- Blend – These companies have a balanced combination of value and growth metrics.
- Growth - These companies are expected to grow faster than average, often reinvesting profits; metrics would include higher price to projected earnings, and price-to-sales ratio
For bonds, credit quality and interest rate sensitivity matter just as much.
Credit Quality - Represents the average credit rating of the bonds held in the fund. High-quality bonds, such as government securities, tend to be safer but yield less, while lower-quality bonds offer higher returns at greater risk.
- High - Weighted average rating of AA- or higher
- Medium - Typically between A to BBB
- Low - Below BBB-, considered high-yield or speculative
Interest Rate Sensitivity - Measured by the average effective duration of the fund’s holdings. Duration matters too—short-term bonds are less affected by interest rate changes, while long-term bonds can fluctuate more.
- Limited - duration ≤ 3.5 years
- Moderate - duration > 3.5 and ≥ 6.0 years
- Extensive - duration < 6.0 years
By balancing these factors, you create a portfolio designed to weather different market conditions and pursue long-term goals.
Our analysis suggests that strategic asset allocation is a primary driver of portfolio performance, accounting for nearly 97.5% in variability of returns. Tactical allocation and security selection comprise only 2.4%.
We believe trying to time the market is typically futile.
This is why we focus on strategic asset allocation and don’t expect to move our tactical weightings very aggressively in the face of short-term noise.
Asset allocation, including strategic and tactical asset allocation, do not guarantee investment returns or eliminate risk of loss.
The economy moves in cycles—periods of expansion, peak, contraction, and recovery. This is known as the market cycle, and understanding where we are in that cycle can help us make more informed investment decisions.
Each phase of the cycle tends to favor different parts of the market. By aligning parts of your portfolio with the current phase of the market cycle, we can potentially:
- Enhance returns by overweighting sectors with favorable tailwinds
- Manage risk by rotating into more defensive sectors during downturns
- Stay diversified while being tactically responsive to economic conditions
This approach is known as sector rotation, and it allows us to be both strategic and adaptive. While we maintain a core diversified allocation, we can tilt toward sectors that are better positioned for the current environment.
Word of Warning!
While it’s tempting to try to “buy low and sell high” by predicting these shifts, successful investing isn’t about timing the market — it’s about time in the market. Now we can explore refining a portfolio, and find opportunities throughout.