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Subject:  Re: money market alternatives Date:  6/22/2011  4:04 PM
Author:  ptheland Number:  69166 of 75384

While I don't necessarily disagree with the other posts, I'll just stick to answering your question.

Money market funds are short term investments. They are for money that you need in the next week to the next couple of months. Their yield is low because you can withdraw the money at any time.

Since you don't need the money to be that available, I'd consider CDs. You might get ten times the interest that you would in a MM fund (which isn't saying much, mind you).

Since you don't expect to need the money for at least 7 years, you should have no problem locking it up in a 5 year CD. However, missing out on rising interest rates might be a concern. In that case, consider a CD ladder.

Divide the money into 5 equal parts, then buy CDs maturing in 1 through 5 years. Each year, you'll have a CD maturing. You can decide how much to withdraw (if any), then roll the balance over into a 5 year CD. Repeat each year. You'll end up with all of your money earning 5 year CD rates rather than some at the shorter term rates. And you'll still have penalty-free access to roughly 1/5 of your money each year.

--Peter
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