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Hi all,

Boy do I need help.

At present, I am living off an investment that will be paid in full in May 2007. I am not eligible for an IRA. After investing a certain percentage in stocks & mutual funds, I am trying to build at least a 3-year cash reserve, maybe even a 5-year one. Because bonds are confusing to me, in the last year I've purchased 3 C.D.'s at various times and at various rates. I was just about to purchase a 4th one when I remembered reading that bonds can be better inflation beaters than C.D.'s.

I owned a Vanguard California Intermediate Term bond fund from October 1998 to last June. I sold it because the overall return for those 20 months was very poor. I realize now that if I had held on to it, the return today would make up for that time period. (I began investing on my own for the first time in my life in 1998)

As of today, I can lock in a 5.50% APY for a 12-month C.D. At my tax rate, that will equal 3.19% I've been told I can do better than that with bonds. However, I know that with the C.D. 12 months from now my principal will be returned with a profit of 3.19% after taxes. My return on my Vanguard bond fund was much lower than that after 20 months. I barely got my principal back. And you can even lose some of your principal with bonds, right?

If I were to buy individual bonds at different maturities, how do I sell them when I'm ready?

Any help you can give me will be much appreciated.

Fool on.


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