Best Investments and Tax Moves After Rate Cuts

What pros wish you knew about rate cuts (and your cash stash)

Quick truth bomb: when the Fed starts easing, cash stops being the hero, first, not last. I know that’s annoying if you’ve been loving 5%ish money market statements this year, but the mechanics are brutal and fast. Yields fall quickly, asset prices reprice, and the window to make smart moves in 2025 is shorter than you think.

Here’s what you’ll get from this section, practical, no-theory stuff:

• Why cash yields fade quickly after easing, while your expenses don’t, reinvestment risk is the quiet killer
• Why the big shift isn’t just “lower rates” but lower discount rates that lift asset prices and compress future returns
• Why your 2025 planning window matters: key provisions from the 2017 TCJA are scheduled to sunset after 2025, touching almost every planning choice

On the speed problem: rate-sensitive cash instruments adjust fast. Money market funds reset off short T-bills with near-daily repricing. In the 2019-2020 easing cycle, the 3‑month Treasury bill yield went from about 2.1% in mid‑2019 to near 0.1% by April 2020 (Fed H.15 data). FDIC data showed the average bank savings rate slipping under 0.1% in 2020 and staying pinned there for a long stretch. Translation: income you thought you had can vanish really, really fast, too fast sometimes; blink and it’s gone.

That’s reinvestment risk. Not the flashy kind, no headlines, but the steady erosion when maturing CDs, T‑Bills, or callable bonds roll off and your new yield is a lot lower. Your grocery bill doesn’t “roll down” with it. If your plan assumed 4-5% cash forever, the math breaks. Professionals hedge that risk by laddering maturities ahead of cuts, selectively terming out into high-quality bonds, and not leaving opportunistic cash idle for too long once the cycle turns.

Next, the market math you don’t see on your statement: falling policy rates cut discount rates, which lifts present values. Equities, investment-grade bonds, even real estate, prices can pop on the repricing. The catch is future returns compress. You harvest some of tomorrow’s return today. That’s why rallies around easing can feel great now but harder later. A simple way to think about it: lower discount rate → higher price today → lower forward yield and expected return. Not complicated, but the knock-on effects across portfolios get messy, I know.

And the calendar matters. 2025 isn’t a victory lap, it’s a planning window. The individual provisions of the 2017 Tax Cuts and Jobs Act are scheduled to sunset after 2025. That includes lower individual rate brackets, the higher standard deduction, the $10,000 SALT cap framework, the 20% qualified business income deduction under Section 199A for many pass-throughs, and the doubled estate/gift tax exemption. The estate exemption, for example, roughly doubled under TCJA and is set to revert after 2025, which could cut the threshold by about half absent new legislation (the exact amounts are indexed, but the direction is clear). If you’re going to do Roth conversions, accelerate income, harvest gains, bunch deductions, or make large gifts, this year is your window to run the numbers under current law, not after-the-fact in 2026.

Bottom line: After cuts start, cash yields drop first, asset prices often jump, and future returns compress. Use 2025 to get ahead of reinvestment risk and lock in tax moves while the TCJA rules still apply.

From 5% cash to a plan: how to reposition without whiplash

Cash felt great at 5%. I get it. Earlier this year, 3‑month Treasury bills were yielding around 5.2%-5.4% (Fed H.15 data for Q1-Q2 2025 had prints in that zip code), and money markets barely broke a sweat. But easing cycles flip that comfort fast. Historically, when the Fed starts cutting, short rates fall first and longest. Price returns shift to where the duration lives. You don’t need a PhD; you just need a simple playbook you’ll actually stick to when headlines get noisy.

• Extend duration, gradually. Start with 2-5 year “rungs” now, and be ready to add 7-10 years as cuts progress. The math is boring but real: price sensitivity ≈ duration. A 2-3 year note (duration ~2) gains roughly 2% if yields drop 100 bps; a 7-10 year Treasury sleeve (duration ~7-8) can gain 7-8% on the same move. The Bloomberg US Treasury 7-10 Year Index carried a duration near 7.6 in 2024-2025 ranges; good enough for planning. The point is to lock decent yields before they slide, then let duration do its thing.
• Keep a barbell, not a blob. Hold short Treasuries or money markets for the next 6-18 months of known cash needs, and pair that with intermediate Treasuries or high‑quality IG credit for total return. Don’t get stuck all in the middle (the 3-7 year “meh” zone) with no dry powder and no real convexity. I use 50/50 as a starting sketch, then nudge either side based on how fast front‑end yields are falling.
• Mind credit, especially late cycle. Spreads can stay tight when growth holds, 2024 investment‑grade OAS mostly lived in the ~90-120 bps range and in 2025 we’ve still been chopping around the low end of that range. Tempting, but defaults in high yield tend to lag rate cuts. If the Fed is easing because growth is slowing, junk can bite, months later. Keep your reach limited: BBBs with durable cash flows, up-in-quality preferreds, and avoid CCC land for “just one more percent.” Been there, got the t‑shirt.
• Mix TIPS with nominal duration if inflation is sticky. If core inflation glues itself near 3%, we saw core PCE run ~2.8%-3.0% at points in late 2024, the market can keep repricing inflation risk even as policy rates fall. A 10-30% TIPS sleeve paired with nominal Treasuries hedges the one‑way bet. Watch the breakeven: when 10‑year breakevens trade around, say, 2.2%-2.4%, you’re paying less for inflation insurance than when they’re 2.7%+.
• Rebalance with rules, not vibes. Use bands (say, ±20% on each sleeve) or a calendar (quarterly works) so you auto‑buy what just got cheaper and trim what popped on “cut” headlines. It feels wrong in the moment; that’s how you know it’s working.

Quick real‑world framing. If you sat entirely in cash last year, you beat a lot of folks who tried to time duration. Fair. But if short rates slide 150-200 bps over the next year or two, typical across past cycles, though each is different, the carry on cash evaporates while a 5-8 duration core can stack mid‑single‑digit price gains, sometimes more. Not a forecast; it’s just the basic bond math I scribble on napkins. I did this with a family account in 2019, staggered into 3s, then 7-10s when the second cut came, and it took the edge off the reinvestment rollercoaster.

One caveat I’ll sneak in and not fully finish: taxes. Taxable investors might prefer Treasuries for state-tax exemption and munis if you’re in a high bracket. Investment‑grade muni yields in 2024 often ran 70%-90% of Treasuries pre‑tax but flipped richer after taxes for top-bracket filers. The spread math matters more than the brand name of the bond.

Playbook recap: add 2-5 year rungs now; be ready to layer 7-10 years as cuts accumulate; keep a barbell of cash‑likes and intermediate quality; stay high in credit; sprinkle TIPS if inflation won’t quit; and rebalance on rules. Simple, boring, repeatable, exactly what you want when everyone else is refreshing the dot plot.

Where stocks and real assets usually shine after cuts

Ok, quick translation from rate mechanics to the equity and real‑asset tilts that tend to work when the Fed shifts from holding to cutting. And no, I don’t think 2025 is a copy‑paste of any prior cycle, just patterns, not prophecy.

• Quality + dividend growth: When policy eases and earnings still grind higher, durable cash flows usually beat the high‑beta fliers. Think high ROIC, stable margins, clean balance sheets, and growing payouts (not just highest yield). History backs that tilt in “soft‑ish” landings: in 1995, after the Fed cut three times, the S&P 500 delivered a +37.6% total return for the year (S&P Dow Jones Indices data), with defensive quality cohorts keeping up without the hangover. My take: in a cuts-with-growth backdrop, I’d rather own dividend growth than dividend “max yield” because payout ratios aren’t stretched and buybacks don’t need heroic credit markets.
• Small and mid caps: Lower financing costs can relieve the Russell 2000 and SMID balance sheets faster than mega‑caps. Rate sensitivity and refinancing risk drive the re‑rating math. In the 2019 mid‑cycle cut episode, the Fed delivered 75 bps of easing and smaller caps outperformed late that year during the “re‑acceleration” chatter (not perfectly clean, but you felt it in funding‑sensitive names, regional banks, capital‑intensive industrials). Caveat: if growth wobbles, quality screens still matter because there’s a long tail of unprofitable small caps.
• REITs: Falling discount rates help present values and, if cap rates compress, NAVs can lift. But debt structure is the tell: I prefer REITs with laddered, fixed‑rate debt and no nasty maturity walls in the next 12-24 months. A quick history check: in 2019, after the mid‑cycle cuts, the FTSE Nareit All Equity REITs index returned +28.7% total return for the year (Nareit), helped by lower rates and benign credit. That’s the upside case. The flip side is 2022’s rate shock showed how fast long‑duration cash flows get marked down.
• International developed: If cuts line up with a softer dollar, non‑US earnings translate back more favorably. Currency hedging is a tool, not a religion, use it when the carry and trend argue for it. Quick reminder of why it matters: in 2017, when the dollar fell double‑digits on the DXY, unhedged MSCI EAFE beat hedged by several percentage points (MSCI index data). If the dollar weakens alongside cuts later this year, unhedged can do more of the lifting; if the dollar firms, flip the switch.

History check, because context beats slogans: 1995’s “soft‑landing” cuts saw broad equity strength (+37.6% S&P 500 TR). 2001 cuts came with recession and the S&P 500 finished −11.9% (total return). The 2007-08 sequence? The Fed started easing in September 2007; 2008 ended −37.0% on the S&P 500 total return. Rate cuts aren’t a guarantee; they’re just the backdrop.

My playbook tilt: overweight quality and dividend growth; add SMID selectively where debt maturity profiles are sane; own REITs with fixed, laddered debt; keep an international sleeve with flexible hedging. If growth holds and the Fed trims, these have tended to be the clean beneficiaries. If growth slips, that same quality bias helps you sleep.

One last human note: this is messy in real time. Spreads, cap‑ex plans, and FX all move on their own clocks. I keep a checklist (debt maturity maps, interest‑coverage trends, FX trend + carry) and size positions around it. Not perfect, but it keeps me from chasing the noisiest chart on my screen.

Lock the bond math while taxes still favor you

Alright, here’s where the investment moves meet the 1099 reality. 2025 is a weirdly good window because the individual provisions from the 2017 TCJA are scheduled to sunset after this year. In plain English: brackets are slated to move higher in 2026, the top marginal rate could revert to 39.6% (from 37% today), the standard deduction likely shrinks back toward pre‑TCJA levels, and state/local tax caps may change. I’m not fear‑mongering; it’s just the calendar.

Harvest gains, on purpose. If your 2025 long‑term capital gains (LTCG) bracket is lower than what you expect in 2026, realize some gains now. The LTCG rates are still 0%/15%/20% this year, and the 3.8% NIIT sits on top for higher‑income filers. If you’re in the 0% LTCG band for 2025, say because of a gap year, sabbatical, or a business dip, harvesting gains resets your basis without a tax hit. Even if you’re in the 15% band now but expect to land in 20% + NIIT later, pulling gains into 2025 can be rational. One more time because it’s the point: harvest gains when your rate is temporarily lower, not when you feel euphoric.

Roth conversions, slices, not slabs. While the 2017 TCJA brackets still apply this year, converting pieces of a traditional IRA to Roth can make sense. Future Roth withdrawals are tax‑free if rules are met and, importantly, rate‑agnostic. Convert up to the top of your target bracket in 2025, leave room for withholdings, and plan around bonuses/RSUs so you don’t push yourself into NIIT territory by accident. I like doing this in 2-3 tranches across Q4, spreadsheets open, coffee on refills. If rates rise in 2026, you’ll be glad you paid 2025’s bill.

Munis vs corporates, use tax‑equivalent math. If yields keep easing into year‑end, existing municipal bonds get a price tailwind. Compare tax‑equivalent yields (TEY) to corporates: TEY ≈ muni yield ÷ (1 − your federal rate). Example: a 3.5% AAA muni for a 37% bracket investor is roughly a 5.6% TEY. If the top rate goes back toward 39.6% next year, TEYs get even more attractive relative to taxable bonds. Credit context matters too: over the long run, Moody’s has shown far lower 10‑year cumulative default rates for investment‑grade munis (~0.10%) versus investment‑grade corporates (~2% range, 1970-2019 study). That’s the dry data backing the muni premium when taxes bite. Quick caveat: specific credits and call features can trump averages, don’t buy a headline yield and ignore the call schedule. I’ve learned that one the hard way.

Tax‑loss harvesting may be scarce if risk rallies. If markets keep cheering rate cuts into Q4, there’ll be fewer obvious losses to harvest. Pre‑position with asset location instead: put tax‑inefficient bond funds, high‑turnover strategies, and leveraged credit in IRAs/401(k)s; hold broad equity index funds and low‑turnover ETFs in taxable. Same idea, said a bit differently: put the noisy income inside the wrapper; let the quiet compounding live outside.

QCDs and RMDs, clean up AGI. If you’re age 70½ or older, you can make Qualified Charitable Distributions (QCDs) directly from IRAs to qualified charities. That gift never hits Adjusted Gross Income, which can help with IRMAA brackets, NIIT exposure, and deduction phaseouts. The RMD age is 73 in 2025 (SECURE 2.0), so coordinate QCDs with upcoming RMDs to avoid double‑counting. One clarification I should make: QCDs can satisfy all or part of your RMD once you hit 73, but QCDs done before RMD age don’t “bank” against future RMDs. People mix that up a lot, I did once, and my CPA gave me the eyebrow.

Practical checklist for the next 60-90 days:

• Map your 2025 taxable income bands; harvest LTCGs up to your target bracket thresholds, watching the 3.8% NIIT line.
• Stage Roth conversions in increments; leave room for year‑end comp and embedded fund distributions.
• Run TEY comps on munis vs A/BBB corporates at current yield curves; favor call‑disciplined, high‑quality munis if your 2026 bracket likely rises.
• Shift bond funds and active strategies into tax‑advantaged accounts; keep equity index exposure in taxable.
• If 70½+, schedule QCDs before your custodian’s holiday cutoff; coordinate amounts with your 2025 or 2026 RMD plan.

And yes, some of this depends on what Congress does, or doesn’t do, later this year. I can’t predict that with certainty, no one can, but the asymmetry is clear: 2025 rates are known; 2026 is at risk of being higher. Lock the bond math while taxes still favor you, and let the tax code work for you instead of against you.

Debt clean‑up and refinancing: the unsexy ROI

If rates are stepping down, the best “investment” might be your liabilities. I know, not exciting. But paying a guaranteed 18-24% APR beats a maybe 6-8% equity return over a few months. And yes, sequencing matters because every payoff or refi changes your cash flow and risk.

1) High‑APR credit cards first. Tackle revolving balances before anything else. The Federal Reserve’s G.19 data shows the average rate on credit card accounts assessed interest was 22.8% in 2023, and hovered roughly 22.9-23.5% across 2024. Card APRs don’t drop one‑for‑one with Fed cuts (banks keep pricing power, and spreads have widened the last couple years). Two moves that work in practice: (a) Pay down aggressively using a snowball/avalanche hybrid, hit the highest APR card while keeping minimums elsewhere, then roll freed cash. (b) Shop 0%/low fixed transfer offers now, but watch the 3-5% transfer fee; if you won’t retire the balance inside the promo window, the math breaks. A fixed‑rate debt consolidation loan at, say, 9-12% can still be a win versus 23% APR, assuming you keep the cards in a drawer (temptation is the silent killer here… been there).

2) Mortgage/HELOC check. If you locked at a pandemic‑era or 2023-early 2024 peak, keep an eye on current rate sheets. For context, the Freddie Mac PMMS showed the 30‑year fixed peaking around 7.79% in Oct 2023. Closing costs matter more than Twitter hot takes. Do the boring break‑even math:

Break‑even months = total refi costs ÷ monthly payment savings.

If you’ll move or refi again before break‑even, pass. For HELOCs, remember these are usually variable and prime‑linked. The prime rate sat at 8.50% from mid‑2023 into 2024; any Fed cuts typically move prime one‑for‑one. Locking a fixed‑rate advance can make sense if your draw is big and the rate delta is real (I’m oversimplifying, HELOC margins vary by lender, LTV, and credit score).

3) Student loans. Keep federal loans federal if you need protections (IDR, PSLF, forbearance options). Refinancing private loans can be smart when you see a meaningful spread, rule of thumb, target a 1-2% rate improvement with no gotcha fees. If you’re within a couple years of payoff, I’d prioritize flexibility over squeezing the last 25 bps, especially if your income is volatile.

4) Auto loans and small‑business lines. Auto rates jumped with 2023-2024 yields; many borrowers landed 7-9% on new cars last year. As lenders reprice this fall, refi quotes can drift lower, shop term‑matched offers and avoid extending the clock so far that you end up upside‑down longer. On business LOCs, they’re often priced at prime plus a spread; even a 50-75 bps cut in prime can flow through quickly. Have a simple rate target and a doc kit ready so you can move fast:

• Targets: card APR under 12%; auto under your current by 1.0%+ without lengthening term; HELOC margin reduction or fixed advance at a clear monthly saving; LOC spread cut of 50 bps or more.
• Docs: recent pay stubs or P&L, W‑2s/returns, mortgage statement, payoff letters, insurance, business bank statements, and a clean personal financial statement. Boring, but it speeds underwriting.

Sequencing cheat sheet (I’m generalizing):

1. Cards at 18%+ APR (consolidate or pay down).
2. Private student loans or personal loans where the rate cut is 1-2%+.
3. Auto refi if you can lower rate without stretching term.
4. HELOC rate management (fix part of the balance if it pencils).
5. Primary mortgage refi only if break‑even is inside your realistic time‑in‑home.

If this feels messy, that’s normal. Debt is messy. Stick to the math, not the vibes, and remember the only ROI that beats a guaranteed savings rate is… well, almost nothing, especially when card APRs are still north of 20% in last year’s data.

Income planning in a falling‑rate world (retirees, this one’s you)

Okay, rates are rolling over this year and that’s good for bond prices, but not so great for future income, and retirees feel that first. The simple structure that works when yields slide: build a 2-3 year cash bucket for your planned withdrawals, then a 3-7 year high‑quality bond ladder behind it. That way if stocks wobble while the Fed keeps easing, you’re not selling equities low or reinvesting everything at thinner yields. The cash bucket is just checking, savings, T‑bills, or a money market. The ladder is individual Treasuries or investment‑grade CDs/bonds maturing each year, no fancy wrappers needed. Sequence risk, sorry, jargon, basically the bad-luck problem of taking withdrawals right after a market drop. The bucket/ladder combo cuts that risk because you spend from cash first while bonds mature to refill it, buying stocks time to recover.

Guarantees: if you want a paycheck you can’t outlive, price single premium immediate annuities (SPIAs) and multi‑year guaranteed annuities (MYGAs) now, not “later this year.” Insurers reprice with rates and with their own portfolio yields, so quotes you see today can be better than quotes after another cut. SPIAs convert principal to lifetime income (mortality credits are doing part of the work); MYGAs are fixed terms, more like a CD from an insurer. Shop multiple carriers and look at state guaranty coverage, period. And yeah, compare the payout rate to your ladder’s yield after taxes and after any fees, apples to apples.

Social Security timing: delaying past Full Retirement Age earns about 8% per year in delayed retirement credits until age 70 (that’s straight from SSA rules). In a falling‑yield backdrop, that 8% is tough to replicate with a bond ladder of similar risk. But it’s not a slam dunk, consider longevity (family history, health), survivor needs, and taxes. If delaying pushes you into drawing more from pretax accounts now, that could be a feature, not a bug, because it opens tax moves while brackets are still what they are in 2025.

Taxes, because the IRS is the silent partner: we’re operating under the 2025 brackets from the Tax Cuts and Jobs Act, and under current law several provisions are set to change in 2026. So coordinate withdrawals to fill your current marginal bracket on purpose. Tactically: partial Roth conversions to the top of your 22% or 24% bracket; realize some long‑term gains if you’re in the 0%/15% area; use qualified charitable distributions (QCDs) from IRAs starting at age 70½; keep an eye on IRMAA thresholds for Medicare. I’ve done bracket‑filling conversions the last two years myself, annoying paperwork, real payoff.

One way to stitch it all together without over‑engineering it:

• Hold 24-36 months of withdrawals in cash equivalents and earmark it explicitly. Label the account if you need the visual reminder.
• Build a 3-7 year ladder of Treasuries/CDs, rolling maturities annually to refill the cash bucket; if rates keep falling, you’ll be glad you locked the earlier rungs, and if they don’t, you’ll reinvest at whatever the market gives you.
• Decide on a SPIA or MYGA for a slice if guaranteed income helps you sleep, price it now, not after the next Fed move.
• Map withdrawals and conversions against your 2025 tax bracket so you don’t accidentally waste low‑rate space ahead of 2026’s scheduled changes.

Quick gut‑check: If stocks drop 15% and rates fall another notch, do you still have two years of cash and five years of bond maturities to fund spending without touching equities? If yes, you’re probably fine. If no, tighten the plan.

Final thought from the scar‑tissue file: in falling‑rate cycles, the reinvestment math sneaks up on you; bond funds may look good on price, but the next coupon stream can get skinny fast, which is why ladders, annuities priced now, and bracket management matter more than usual.

Okay, what if you just wait? (a quick reality check)

I get it, there’s a real temptation to let Q4 breeze by and “see where rates settle.” Happens every cycle. But time keeps moving, and in a falling‑rate backdrop it’s the quiet stuff that costs you. Here’s a clean 90‑day runbook you can literally check off while markets keep arguing with themselves.

• Next 30 days: Map your cash needs for the next 24 months (month by month; close counts). Set rebalance bands (e.g., +/- 5% on equities, +/- 2% on duration) so you’re not winging it on a red headline day. Start a 2-5 year bond ladder with Treasuries or high‑grade munis to lock current coupons before they slip; even one rung per month is fine. And pull a 2025 tax projection, yes, now. You want to know your ordinary and capital gains headroom while we still have 2025 brackets in place.
• By 60 days: Execute partial Roth conversions into any 2025 ordinary‑income space you’ve identified. Realize strategic gains where your long‑term capital gains rate is 0%/15% this year (remember the 3.8% NIIT kicks in above $200k single/$250k MFJ of modified AGI, 2013 rule, still here in 2025). Line up any debt refinances with clear rate triggers (e.g., “refi the 6.5% mortgage when 30‑yr hits 5.5%”). You don’t have to pull the lever today; you just have to pre‑wire it.
• By 90 days: Re‑underwrite your equity tilts, quality balance sheets, small/mid caps, and a sober look at REITs if cuts continue and financing costs ease. Finalize asset location: interest and high‑turnover strategies in tax‑deferred; broad equity/qualified dividends in taxable; Roth reserved for your highest expected return/volatility sleeves. Boring, but it compounds.

Why the rush if rates are falling? Because two clocks are ticking. One is income. Cash yields already rolled over from the 5%+ peaks we saw last year, and every 25 bps cut bleeds into money market resets in weeks, not months. The other is taxes. The individual rate cuts from the Tax Cuts and Jobs Act are scheduled to expire after 2025; the top marginal rate is slated to move back up to 39.6% from 37% in 2026, and the $10,000 SALT cap also sunsets. Translation: harvesting gains and doing Roth conversions in 2025 can be cheaper than waiting.

Quick math, since I’m the annoying person who does this on napkins: extend duration by 3 years at a time when yields drop 50 bps, and your bond sleeve’s price pop is roughly duration × rate move. A 5‑year duration gets you ~2.5% in price from a 0.50% move, before coupons. Don’t extend, you miss it. Same vibe on debt: cutting a mortgage rate by 1% on a $400,000 balance is about $230/month in payment savings (30‑year, standard amortization). Waiting often just hands that back to the bank.

If you don’t act: cash yields drift down; you miss the duration bonus in bonds; you potentially pay higher tax after 2025 (NIIT is still 3.8% on investment income above the $200k/$250k thresholds), and you keep expensive debt that didn’t need to be. I’ve watched that movie, twice. It ends the same way.

And yes, this is messy, you’re juggling brackets, basis lots, and lender fine print (I know, I know). But a 90‑day cadence beats the “wait and see” shrug every time. If you want my selfish angle, it’s this: future‑you is less cranky when coupons are locked, taxes are pre‑managed, and your refi guy is calling you, not the other way around.

Frequently Asked Questions

Q: Should I worry about the 2017 TCJA provisions expiring after 2025 for my year-end planning?

A: Short answer: yea, you should plan around it. Many pieces sunset after 2025, lower brackets, the bigger standard deduction, the SALT cap structure, the 199A pass-through deduction, and today’s high estate exemption. Practical moves for 2025: consider Roth conversions, accelerate charitable giving (DAF works), evaluate realizing income this year, and bunch deductions. Don’t wait until late December to scramble.

Q: How do I adjust my cash strategy after rate cuts without wrecking liquidity?

A: Treat cash in tiers. Tier 1: 3-6 months of expenses in checking/high‑yield savings for true emergencies (FDIC/NCUA insured). Tier 2: near-term needs in 3-12 month T‑Bills or CDs, preferably laddered. Tier 3: opportunistic cash, start terming out selectively into high‑quality bonds before yields fall more. Money market yields can reset fast, recall the 3‑month T‑Bill moved from ~2.1% mid‑2019 to ~0.1% by April 2020 (Fed H.15), and average bank savings sank under 0.1% in 2020 (FDIC). Reinvestment risk is the real gotcha.

Q: What’s the difference between staying in money markets and building a bond ladder right now?

A: Money markets are ultra‑short and reprice almost instantly, which is great on the way up and painful after cuts. A ladder (say 6, 12, 18, 24 months) locks today’s yields across staggered maturities, reducing reinvestment risk and smoothing cash flows. Treasuries bring state tax perks; CDs may offer slightly higher rates but watch call features and early withdrawal penalties. Credit? Stick to Treasuries/FDIC-insured to keep this a rate decision, not a credit bet. Keep some liquidity unladdered for surprises.

Q: Is it better to pay down my mortgage or buy bonds when yields are falling?

A: Start with the guaranteed return: prepaying fixed debt “earns” your after‑tax mortgage rate. If you don’t itemize, that’s simply your stated rate. If you do itemize and mortgage interest is deductible, the after‑tax cost drops. Example: a 3.5% mortgage and you don’t itemize equals a sure 3.5%. Bonds aren’t guaranteed, but they bring income, liquidity, and potential price gains if rates keep dropping.

Here’s a practical framework I use with clients:

• After‑tax math: Compare your after‑tax mortgage rate to realistic after‑tax (or tax‑equivalent) bond yields. Hypothetical: a AA muni at 3.0% has a tax‑equivalent yield of ~4.6% at a 35% marginal rate (3.0% / 0.65). If that comfortably beats your mortgage rate, bonds can make sense.
• Duration and risk: If you buy intermediate Treasuries/IG bonds, you’ll have price volatility. That can help (cuts usually lift prices), but it’s not the same as a guaranteed prepayment.
• Liquidity: Extra principal is illiquid. Bonds (or a T‑Bill ladder) keep optionality for emergencies or opportunities.
• Behavioral angle: Some folks sleep better with less debt. That has value, even if the spreadsheet says bonds win by 20-40 bps.
• Reinvestment risk: With cuts, money market yields fall first, then new-issue bond yields follow. Locking some term now can protect income, while still dollar‑cost averaging.

Rule of thumb: If your after‑tax mortgage rate is below a conservative, risk‑adjusted bond yield you can actually buy today, leaning toward bonds and preserving liquidity is reasonable. If your mortgage is 5-7% and non‑deductible, prepayments look compelling. You can also split the baby, set a policy (e.g., 50% of extra cash to prepay, 50% to a Treasury/muni ladder) and review quarterly. Keep an eye on the potential TCJA sunset after 2025; higher brackets later could change the math on deductions and muni attractiveness.

@article{best-investments-and-tax-moves-after-rate-cuts,
    title   = {Best Investments and Tax Moves After Rate Cuts},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/investing-tax-moves-rate-cuts/}
}