|
Posted by s o on July 9, 2007, 5:18 pm
hi,
I've some ideling cash(about $10k to 15K) which I probably won't need
to tab into in 2 or 3 years, right now it's sitting in a approx. 5.1%
6-month CD that renews automatically. is this the best I can do? Can
soemone recommand some funds(bond funds, I guess)? thanks in advance.
PS, all my tax deferred accts have been maxed out already.
s o
|
|
Posted by Sandra Loosemore on July 9, 2007, 9:57 pm
> I've some ideling cash(about $10k to 15K) which I probably won't need
> to tab into in 2 or 3 years, right now it's sitting in a approx. 5.1%
> 6-month CD that renews automatically. is this the best I can do? Can
> soemone recommand some funds(bond funds, I guess)? thanks in advance.
>
> PS, all my tax deferred accts have been maxed out already.
If you think you are probably going to need the money in 2-3 years for
some particular purpose, it's probably best to leave it where it is.
OTOH, if this is general savings you probably are *not* going to need
anytime soon, a bond fund might be reasonable provided that you can
deal with the risk of loss of principal. I say "might" because
nowadays interest rates are in a funny cycle where bank savings
accounts and CDs are paying as much as, or more than, bonds.
If this is in a taxable account, though, you may find that the best
deal is to invest in a state-specific muni bond fund. It depends on
your state taxes as well as your federal tax bracket. I personally
have found that holding CDs in my E-Trade bank account doesn't pay
because the interest has such lousy tax treatment in MA (taxed at 12%
as opposed to 5.3% for every other kind of income, on top of the 28%
federal tax). I have about $10K of "emergency fund" in a money market
account, but I now keep my general savings and "cash" reserves in
VMATX instead.
-Sandra
|
|
Posted by joetaxpayer on July 9, 2007, 10:47 pm
Sandra Loosemore wrote:
> If this is in a taxable account, though, you may find that the best
> deal is to invest in a state-specific muni bond fund. It depends on
> your state taxes as well as your federal tax bracket. I personally
> have found that holding CDs in my E-Trade bank account doesn't pay
> because the interest has such lousy tax treatment in MA (taxed at 12%
> as opposed to 5.3% for every other kind of income, on top of the 28%
> federal tax). I have about $10K of "emergency fund" in a money market
> account, but I now keep my general savings and "cash" reserves in
> VMATX instead.
>
> -Sandra
VMATX has a YTD return of .26% (as of 5/31). So your warning about the
holding period is well taken. It has a 'duration' of 5.54 years, which
means that if rates notched up .10%, the fund would drop about .55% in
value. With a current yield of 4.23%, it's nearly equal to a 7% taxable
return.
JOE
|
|
Posted by kastnna on July 10, 2007, 9:08 am
>
> VMATX has a YTD return of .26% (as of 5/31). So your warning about the
> holding period is well taken. It has a 'duration' of 5.54 years, which
> means that if rates notched up .10%, the fund would drop about .55% in
> value. With a current yield of 4.23%, it's nearly equal to a 7% taxable
> return.
>
You can also sell a bond fund like VMATX at any time. What are the
stipulations on the CD's? It is not uncommon to find premature
withdrawal and/or interest penalites if not held to maturity. If this
is the case for you also, a bond fund would eliminate that specific
risk factor.
|
|
Posted by joetaxpayer on July 10, 2007, 12:35 pm
kastnna wrote:
>
>>VMATX has a YTD return of .26% (as of 5/31). So your warning about the
>>holding period is well taken. It has a 'duration' of 5.54 years, which
>>means that if rates notched up .10%, the fund would drop about .55% in
>>value. With a current yield of 4.23%, it's nearly equal to a 7% taxable
>>return.
>>
> You can also sell a bond fund like VMATX at any time. What are the
> stipulations on the CD's? It is not uncommon to find premature
> withdrawal and/or interest penalites if not held to maturity. If this
> is the case for you also, a bond fund would eliminate that specific
> risk factor.
Risk tolerance applies even to this situation. A one year CD holder will
still have a risk of needing the money sooner, and the usual penalty is
3 months' forfeited interest. this is easy to understand.
The concept of bond fund having a 'duration' yet no 'maturity' as
compared to individual bonds is less understood. When I held "short term
bond fund" as my cash position in my 401(k), I couldn't get the
investment firm to give me the duration, only a vague description
including the word 'safety'. Rates went up enough that year that the
fund's return was exactly zero. This was long enough ago that the
dollars were minimal, but I learned a lesson. Anyone looking to invest
in a fund such as VMATX should understand what they are buying and how
the value can fluctuate with rate movement. (kind of like how home
buyers should have understood this for the ARMs they got into). Please
don't misinterpret or read further into my remarks, the fund looks great
for MASS residents, it's just not for 1 year money. (And Sandra didn't
represent it as such).
JOE
|
| Similar Threads | Posted | | Can a short term capital loss balance long term capital gains? | October 19, 2008, 8:11 am |
| Re: short vs. long-term bonds | July 3, 2007, 2:02 pm |
| Re: short vs. long-term bonds | July 4, 2007, 9:34 am |
| Short term saving + interest | July 18, 2007, 2:00 pm |
| Where to park short-term excess cash? | December 7, 2006, 5:01 am |
| Short-term Fund purchasing advice... | January 6, 2009, 7:32 pm |
| Selling losing stocks to avoid short term tax | December 12, 2006, 1:06 pm |
| $100K - $150K to invest short-term - Where do I place it? | January 29, 2007, 4:59 am |
| Planning for short/long term capital gains | June 14, 2007, 4:51 pm |
| Offsetting an unexpected short term capital gain | March 2, 2008, 7:09 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap