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Finance & Stock Groups Forum Index » Financial Planning » need recommandation on short term investment
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| s o |
 Posted: Tue Jul 10, 2007 1:18 am |
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Guest
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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 |
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| Sandra Loosemore |
| Posted: Tue Jul 10, 2007 5:14 am |
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s o <jou128@yahoo.com> writes:
Quote: 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 |
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| joetaxpayer |
| Posted: Tue Jul 10, 2007 5:14 am |
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Sandra Loosemore wrote:
Quote: 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 |
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| Lon |
| Posted: Tue Jul 10, 2007 1:08 pm |
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Guest
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On Jul 9, 2:18 pm, s o <jou...@yahoo.com> wrote:
Quote: 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
Take a look at Vanguard's Prime Money Market Fund
Lon |
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| PeterL |
| Posted: Tue Jul 10, 2007 1:17 pm |
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Guest
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On Jul 9, 2:18 pm, s o <jou...@yahoo.com> wrote:
Quote: 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
Best you can do unless you want to take on more risk. |
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| kastnna |
| Posted: Tue Jul 10, 2007 5:08 pm |
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Guest
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On Jul 9, 9:47 pm, joetaxpayer <joetaxpa...@nospam.com> wrote:
Quote:
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. |
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| Guest |
| Posted: Tue Jul 10, 2007 5:10 pm |
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Sandra Loosemore <sandra@frogsonice.com> writes:
Quote: s o <jou128@yahoo.com> writes:
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%
I think you might be mistaken. In MA, 5.3% applies to wages,
interest, dividends and long-term capital gains. The 12% rate
applies only to short-term cap-gains, and all cap-gains on
collectibles.
MA's taxes used to be vastly more complicated (5 or 6
different cap-gains holding periods, plus higher income
tax rates on interest from out-of-state banks, but that
stuff's gone away).
See:
<http://www.bankrate.com/brm/itax/edit/state/profiles/state_tax_Mass.asp>
That all said, yes, the OP should certainly consider
muni bond and/or muni money-market funds (and take into
account which state and state income taxes as well as
federal). By way of continuing example, Fidelity's
Mass Muni MMF is currently yielding approx 3.3% while,
their fully taxable "cash reserves" MMF is yielding
just about 5%. An average taxpayer in the 25% federal
bracket thus gets 3.75% on the taxable fund after
federal taxes and after state taxes, it's down to
roughly 3.5% - (ignoring potential deductibility of state
taxes on federal return) - so 3.5% vs. 3.3% - for the
25% bracket taxpayer, it's too close to worry about.
For the 28% taxpayer, the end result is almost precisely
identical. It isn't until the 33% and 35% brackets
where the muni fund is a clear win.
Now, whether a money-market fund is the right place
in the first place is a different question, but given
where CD yields are now (ie. as low - or lower! than
money market rates), I don't know that there's any reason
to lock the money up that way at the moment.
There's nothing wrong with cash (or money-market funds).
Folks often feel a need to do something more exciting
or interesting than that, but, especially given the
current yields on cash, there's nothing whatsoever
wrong with it.
(food for further thought: ETrade Complete Savings is
currently paying 5.05%; ING Direct: 4.5%; HSBC Direct: 5.05%;
etc etc.)
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting |
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| Sandra Loosemore |
| Posted: Tue Jul 10, 2007 5:10 pm |
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Guest
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BreadWithSpam@fractious.net writes:
Quote: I think you might be mistaken. In MA, 5.3% applies to wages,
interest, dividends and long-term capital gains. The 12% rate
applies only to short-term cap-gains, and all cap-gains on
collectibles.
MA's taxes used to be vastly more complicated (5 or 6
different cap-gains holding periods, plus higher income
tax rates on interest from out-of-state banks, but that
stuff's gone away).
Hmmm, yes, I think you are right, and I was going on my memory
of the way things used to be.  Well, I have no interest-bearing
out-of-state bank accounts any more anyway; as I said, I've got my
cash in a money market fund, and use my muni bond holding as a backup
to that in case of some dire need for money.
-Sandra |
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| joetaxpayer |
| Posted: Tue Jul 10, 2007 5:10 pm |
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kastnna wrote:
Quote: On Jul 9, 9:47 pm, joetaxpayer <joetaxpa...@nospam.com> 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 |
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