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First I wanted to say how shocked I am at the collective lack of savvy that people on the board have. I know I am a little obsessive about investing, but considering what's at stake, I don't understand why people don't take more time to figure out how it all works.

Have said that, I have a friend who is sitting on a big chunk of money in a savings account. This friend is getting about 4% and paying taxes on this!!! Most taxable bonds will yield higher amounts but still have that tax problem, a huge percentage loss of potential income. In fact at 3.5% inflation and 46% marginal tax, this friend is losing money to the tune of 1.5% a year.

I've heard of zero coupon bonds, buying a bond at a price that is reduced by the cumulative return on the principal. This avoids short term capital gains (46% annual) in exchange for long term capital gains (20% on the total return).

Have I got this right? Does anybody know what the yields are on these instruments?

neeg
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