Before I start let me please ask one thing: family and friends who know me well, please try to keep the snickering to a minimum as you read this. Here goes.
One of the requirements of my day job is working with our finance committee to figure out how to manage the association's money. Cash management is a given for any company, but like many non-profits we have emergency reserves that we have to manage and make sure they will indeed be there for a rainy day. (The thought of me managing emergency reserves is what probably has my family and friends snickering since I'm the same guy who in college, and the ensuing years until marriage, managed his checking account via ATM. If there was money there I took it and if there wasn't I just shrugged, wondered where the hell it had all gone and resigned myself to eating peanut butter until the next payday arrived). The association's bylaws limit what we can do with the reserves so there's really not a lot of thinking to do. We just have to find the best possible return in money market funds or CDs and we have to make sure they are structured so that they're fully insured. Here's the rub: CDs and money market funds currently have rates that range from zero (that's right, nada) to one or two percent. Unless inflation stays that low then our money is effectively losing value as it sits in the bank.
All that's to say that if you have financial reserves with which you need to play it safe then you're going to have to accept break even as a good deal for the time being. Along those lines Fred Wilson has a very pertinent and must-ready post here.
