Where are the folks on this board investing new moneys for the fixed income portion of your portfolios?
PenFed. Our primary purpose for the fixed-income portion is to have the money available when we need it. (Losing a little to inflation every day is just bonus.) PenFed has generally had the best combination of insured CDs and yields, although Navy Federal Credit Union has occasionally been competitive.
Putting it into equities would create an imbalance in my portfolio. I think interest rates have no where to go but up, so I'm a little leary of adding it to one of my bond funds. Reinvesting in CDs is not attractive either.
The buzzphrase for what you're doing is "chasing yield". You've already decided that you don't want to mess with your asset allocation (probably a wise decision) so why take more risk with money that you've deemed needs to be absolutely safe?
The next agonizing choice would be deciding whether to go short or long, yet if you stay short it could be a couple years before the Fed has enough economic activity to justify raising rates. What if today's rates are as good as it's going to get before 2013?
Last year when our final 6.25% CD matured, we agonized over the difference in rates between three-year and five-year CDs. We finally decided to continue with a five-year ladder. The yield is a little higher, the early-redemption penalties are the same, and we don't have to become flawless market timers. When rates go up, our ladder's rates will follow. In the meantime we have a slightly higher yield than if we'd stayed short, and the money's available if we need it (for a small early-redemption penalty).
I think the real benefit of having risk-free liquid assets is that when you need them you can get them right away and pay cash for a discount, or at least avoid having to pay credit-card interest rates. The discount (or the lack of credit-card debt) is the reward for putting up with all those years of low CD yields. Another "reward" would be not having to sell bonds or equities at a time when their share prices have been hammered.