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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35272  
Subject: Re: Risks w/ municipal bonds? Date: 5/20/2009 5:17 PM
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Sounds like you are suggesting I keep hundreds of thousands of dollars in a money market at less than 1/2 of 1%.

I'm not suggesting this, and I'm not sure Jack is.

But if you want to choose low default risk options (Treasuries, TIPS Insured CDs, maybe GNAs), you will get low yields, especially in the current market. (Thanks to having been laddering for years, I am still averaging about 5%.)

But if you are hung up on the convenience of one stop shopping, as good as Vanguard is, you will have to accept lower returns than you can get if you combine Vanguard with a couple of banks or credit unions (notably Pen Fed) that tend to provide higher returns than brokered-CDs through Vanguard (although sometimes those have better yields). Especially right now, having the possibility of getting out for 2% on a CD is appealing, in case inflation takes off. You can't do that with brokered-CDs.

If you do want to stick to Vanguard, I guess I would just ladder brokered-CDs. You can probably average 3% and have good liquidity for next 5 years to rollover maturing CDs if yields go up. No guarantee 3% will beat GNMA over next 5 years, but if these absurdly low interests rates on high quality mortgages do go up even 1% point, you'll do about as well with a CD ladder.
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