Where to park your money for liquidity and safety
I was recently reading a blog post that described four safe places for your money and that being the following:
- Treasury Inflation Protected Securities
- US Saving I-Bonds
- Short Term Bond Funds
- Bank CD’s
In a previous post on this blog I wrote two articles recently on TIPS (Treasury Inflation Protected Securities) and I-Bonds. You should find those articles just a few posts back if you wish to read the articles.
On the subject of short term bond funds which generally consist of high-quality corporate, municipal, or government bond, the value of short-term bond funds decline significantly less in an increasing interest rate environment.
This is because portfolio managers are not tied to below market interest rates for long. Upon maturity, they can reinvest money in higher yielding instruments. Make sure the portfolio holds bonds of maturity of less than 5 years.
With bank CD’s I would suggest you stick with shorter maturity terms, the shorter the better as inflation has been increasing over the past several months and the likelihood that the “Feds” will keep interest rates at current levels is uncertain.
An added benefit for buying the US Saving Bonds is the fact that the bonds are tax deferred. Unlike TIPS, bond funds and CD’s you will not have to pay taxes annually. The tax bill will not arrive until you redeem the bonds which you may hold up to 30 years and still receive interest.
Daniel Iuculano
Financial Plannner
