Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Choosing cash/short term bond/bank/cd for low risk money
Old 10-23-2005, 11:26 AM   #1
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 454
Choosing cash/short term bond/bank/cd for low risk money

Am thinking ahead for January when I'll need a place to put new taxable money.

Rates and situations might change, but here's my thinking today:

----------------------------------------------------------------
ibonds
+ good return for no risk: 1.2%+cpi
+ rate locked 30 years, but can sell after 1 year
(protection against real rates dropping below 0)
+ ACH link to other accounts
+ tax deferral of interest
- can't sell first year
- small penalty first 5 years

EmmigrantDirect
+ currently 4% with no risk
+ ACH link to other accounts
- may have to get rid of if current rates turn out to be a tease

Individual TIPS, such as 5 year bond
+ good risk/return (1.6%+cpi, 5yr's duration under 3 years?)
- fees to buy, except at auction with certain brokers
- fees when I sell before maturity
- lose some $ to spread when sell?

VFSTX vanguard short term investment grade
+ over the long term, usually has good risk/return
+ checkwriting and ACH link to external accounts
- risk/return 4.2% currently seems inferior to most other options
- $10/year fee if under $2500

VIPSX vanguard inflation protected
+ checkwriting and ACH link to external accounts
- high risk (7 year duration) but yield same as 5yrTIPS
- $10/year fee if under $2500

TIP ishares tips
+ slightly shorter duration than VIPSX
- duration is still long, about 6 years, but yield same as 5yrTIPS
- pay spread and commissions when buy and sell

CD's
- don't know of any that seem better to me than combining above options

Money market
- lower return and higher risk than EmmigrantDirect
----------------------------------------------------------------

Am considering either:

1) 1 year of expenses in EmmigrantDirect, and rest in ibonds

or,

2) 1 year of expenses in VIPSX, and rest in ibonds


My first choice would be to combine 5yrTIPS, ibonds, and a little EmmigrantDirect, but the fees (and spread?) on selling the TIPS, having to wait til the April auction, and opening another brokerage account ruins this option for me.

I don't like the exposure to interest rate risk in option 2, but at least it's real rate exposure, not nominal. Actually, the risk is less of a problem than feeling I'm not being compensated for the risk.
One might say I also get a diversification benefit, with the chance to gain if real rates drop. But, I already have 15% of portfolio in PCRIX which holds intermediate TIPS, and I feel intermediate-long TIPS yields might be low today.

http://www.bloomberg.com/markets/rates/
http://flagship2.vanguard.com/VGApp/...FundIntExt=INT
http://www.ishares.com/fund_info/det...ml;?symbol=TIP
http://www.emigrant-direct.com/index.php

(Crossposted on Raddr's board)
__________________

__________________
lazyday is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Choosing cash/short term bond/bank/cd for low risk money
Old 10-23-2005, 12:39 PM   #2
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Choosing cash/short term bond/bank/cd for low risk money

Go with i-bonds, but wait for the fixed rate change in November.

Personally, I prefer i-bonds and TIPS to VIPSX. Why pay for annual fund expenses when you can buy and hold TIPS/i-bonds for free?
__________________

__________________
wabmester is offline   Reply With Quote
Re: Choosing cash/short term bond/bank/cd for low risk money
Old 10-23-2005, 01:40 PM   #3
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 454
Re: Choosing cash/short term bond/bank/cd for low risk money

Quote:
Originally Posted by wab
Why pay for annual fund expenses when you can buy and hold TIPS/i-bonds for free?
Since much of the money will need to be spent within one year.
TIPS could make sense if $ amounts were larger, but fees and other negatives above make me consider VIPSX.
__________________
lazyday is offline   Reply With Quote
Re: Choosing cash/short term bond/bank/cd for low risk money
Old 10-23-2005, 01:49 PM   #4
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Choosing cash/short term bond/bank/cd for low risk money

I didn't realize your holding period was less than a year. In that case, neither TIPS nor VIPSX makes much sense. They are both subject to short-term volatility. Stick with a money market for anything you need to use in less than a year, and perhaps i-bonds if you plan to hold at least one year.
__________________
wabmester is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Short term money MRGALT2U FIRE and Money 37 06-07-2005 10:01 PM
Investment to hold short term money dex FIRE and Money 2 09-29-2004 06:23 AM
Question - 'Chicken' Money' Ol_Rancher FIRE and Money 1 01-10-2004 08:56 AM

 

 
All times are GMT -6. The time now is 01:28 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.