No. of Recommendations: 3
I was wondering, is it a good idea to keep part of our retirement portfolio in "cash" as asset allocation pie charts for our risk tolerance say we should? I think it would be 5% that they say we should have in cash.
And if so, what might be a good thing to do with that cash, aside from a money market fund paying something like 0.01%? I am considering:
Municipal Bonds
And if we buy some of one or the other, it may be on the secondary market. Is AA considered safe enough for Munis for that cash?

We have "cash" in several places. One is "cash" in our brokerage account. Against that we can write checks, transfer it electronically to our local checking accounts, or whatever. It's a good chunk, sitting waiting for an opportunistic buy on a great stock, the purchase of a new car for me, or to ransom one of my cats if stolen.

Another place is in CD's, via Ally, which has the best rates I've found with the smallest penalties for breaking it (3 months loss of interest.) Those are laddered across 3, 4, 5 years, IIRC.

And we have "Savings Bonds" which are redeemable at any bank for actual cash. Most of that is in I-bonds, although there are a few oldies - some of which actually come due this November. Those are paying a pretty fat rate, and I will be sorry to see them go.

We do not have any Muni bonds, as that can be an illiquid market and if you have to sell at a distress time you are at the mercy of someone with "cash." We used to have a bond fund, but at some point interest rates are going to rise and that will decimate the par value of the bonds. Short term enough and the managers will be able to get out of the way. Sudden shock and they won't, and there will be a rush for cash, just like a bank run, and if they have to liquidate at the bottom they'll break the buck, so to speak.

(For those who pine for the days of 6% MM rates, just remember that at the time inflation was eating up most of that 6% anyway. You were a bit ahead of where you would be today, but it's not as though that 6% was a discrete 6% and you were getting it all. Today rates are low, but inflation is low. Not quite the same difference, but close.)
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