I have written previous articles on this website about Structured Notes (an introduction to these notes is here). While Structured Notes involve real risks, I have suggested that those trying to put money away safely with a long horizon can pick up yield by placing some small part of their assets in these Notes.

In this recent article, I discussed a JP Morgan Chase issue that was tied to the spread between the 30 year Constant Maturity Swap (CMS) and the 2 year CMS. The instrument, which is now fully syndicated, pays the 30 year rate minus the 2 year rate times 4 to a maximum of 9% annually, provided the S&P stays above certain benchmarked levels.

This new Citibank offering is similar, except it is tied to the 5 year CMS instead of the 2 year. The Note, which is callable, pays 10% in the first year and then in years 2 through 15 pays four times the 30 year CMS rate minus the 5 year CMS rate to a maximum of 10%. Determination of applicable rates is based on a measurement date 2 business days before the quarterly pay date, and the Note pays nothing if the 5 year CMS rate is greater than the 30 year CMS rate on that measurement date.

I was somewhat enthusiastic about the JP Morgan Structured Note and actually took a small position in it. The Citibank Note will be more interesting to some as it has certain advantages over the JP Morgan issue. In particular, I discussed the large risk associated with the payment condition set in the JP Morgan Note that the S&P index not fall by more than 25%. The Citibank Note does not have this S&P contingency; it is entirely based on the CMS spread. It also pays 10% in the first year and can pay up to 10% in subsequent years. Earning 10% on your money is obviously more attractive than 9%.

I personally am not sanguine and would not recommend buying these Citi Notes for three reasons. First, unlike the JP Morgan Notes, this Note is callable after the first year. On an illiquid 15 year note, a call feature creates tremendous disparity between the buyer and the seller/issuer. The seller, Citibank here, has the option to call it quits at any given quarter if the spread is not moving in their favor. Second, I am more concerned especially when I look out over a 15 year horizon at the spread between 30 year and 5 year interest rates (as reflected in CMS), than I am about the spread between 30 year and 2 year rates. (I will however admit that charting the rate for the last 15 years shows that the risk has not been dramatically greater.) Third, Citibank is less credit worthy than JP Morgan, and would be more vulnerable in the event of another banking crisis in the next 15 years.

While I wouldn’t recommend this instrument, those interested in this note can find it listed under CUSIP 1730T0A82 and ISIN US1730T0A821.

Several months ago I wrote an article providing some guidelines on how much of a person's assets should be in cash. After writing the article, I began to ponder the question in even greater detail, especially as it relates to retirees.

There is a lot of information available on how much of a retiree's portfolio should be comprised of stocks and bonds, but when it comes to cash, the information is almost non-existent (for the purpose of this article, I am defining cash as money held in a bank or credit union and covered by FDIC or NCUA insurance). Interested in learning more, I found some good advice that can guide any retiree when thinking about the cash component of their saving and investing plan.

• View the best savings account rates.
• View the best CD rates.

I first spoke with Phil Demuth, a frequently consulted investment advisor to high net worth individuals. He is a contributor to Forbes and is the founder of Conservative Wealth Management LLC. In Phil's opinion, cash has two functions:

One, it allows holders peace of mind and the ability to sleep soundly. This is especially true in difficult economic times (think back to 2008). Two, cash provides individuals with flexibility so that they do not need to sell volatile assets when prices drop and they can maintain liquidity in a bear market. Cash also allows individuals to take advantage of buying opportunities when the market is down. Individuals with lots of cash do not need to panic in hard times.

The downside of cash is the opportunity cost. Money invested in an FDIC insured account paying 1% APY is losing ground when the stock market goes up 10% or more in a year. Several other investment advisors I spoke with didn't like the idea of including cash in a retirement portfolio. David Houle, CFA from Seasons Investments stated that:

"In my opinion there's very little reason to hold cash in a retirement portfolio, especially given the low yields to be had on cash holdings. What's implied by the term "portfolio" is that it's the pool of savings that have been set aside to be invested for capital gain and income. That money, in general, should remain fully invested in assets that are going to generate a return. There are periods of time where one might want to hold cash temporarily for tactical reasons, but this is different than carving out a permanent allocation dedicated to cash."

Ilene Davis, a Certified Financial Planner echoed David's comments, saying:

First, to clarify, what some people consider their "retirement portfolio" are the qualified plans they have. A true retirement portfolio should include anything that is likely to be liquidated to provide funds through the retirement years.

Therefore, instead of focusing on a percentage that should be in cash, I would recommend that the focus be on how many months of expenses, plus emergency fund, should be in cash.

Brian Frederick, a CFP from Stillwater Financial Partners told me that:

The cash portion of a portfolio depends on someone’s age and what their work status is. For people in retirement, I typically like to see one to two years of living expenses held in cash or CD’s as it will provide a risk free source of money if they need to tap into it unexpectedly. For people still working, I encourage them to have 3-6 months of cash set aside for emergencies. Ideally, this would be in a separate bank account but I’ve also had clients do it inside of a Roth IRA if that’s their only money.

He continued to say:

Interest rates fell off a cliff around Thanksgiving 2008. As a result, cash should be viewed more as a safety net than an income producing asset class. The other side of the coin is that it is dangerous to reach for yield by using bonds – bond prices go down when interest rates go up. Most bond funds this year have lost money as a result of interest rates going up in May & June.

So does cash belong in your portfolio or is it just a part of your emergency fund? Unfortunately, there is no one formula to determine how much of an individual's net worth should be held in cash. It depends on how you think about investing and also your own emotional thresholds and risk tolerance.

Almost all of the experts agreed that at a minimum, those in retirement should have at least 3-6 months of living expenses in cash, while many think that 1-3 years is more appropriate.

Lower Risk Tolerance

Beyond this emergency fund, if you believe, as the famous investors Benjamin Graham and Warren Buffet do that cash is king, then you should set some aside to buy low, when everyone else is heading for the exits. This is exactly what Warren Buffet did in 2008, getting bargain prices on Goldman Sachs and other distressed companies and assets. Cash should also be part of your portfolio if you lose sleep every time the market dips. Peace of mind is itself a valuable asset. The percent of your portfolio you hold in cash will depend on the net worth of your assets, your income needs, and a variety of other factors. Mr. Demuth did caution that investing in bonds is not a substitute for cash. While some short duration, high quality bonds may approach cash in their risk profile, bonds can lose value and some can even default.

Higher Risk Tolerance

If you believe that markets will not crash during your retirement, market volatility does not bother you, you have enough wealth to weather a potential loss in assets, or you want to get the highest yield on your assets, then you should limit your cash to an emergency fund to cover living expenses for a certain period of time.

A qualified investment advisor will be able to listen to your need and design a suitable portfolio.

For the cash that you do hold, make sure you are maximizing its return by getting the best possible rate. BestCashCow's rate tables provide the most competitive rates on savings, CDs, and other FDIC insured or NCUA insured bank and credit union accounts.

• View the best savings account rates.
• View the best CD rates.

You can also use our Savings Booster Calculator to see how much extra income you can earn by switching to a high yield FDIC account.