Breaking the 1.5% yield ceiling.
September 9, 2009 3:19 AM Subscribe
Are four- or five-percent returns a thing of the past? What are the options for people who'd like to park money in a fund or investment earning a relatively save, consistent yield of more than 1.5% percent?
Through the end of, say, 2007, many money market funds delivered a yield of around 4 or 5 percent. These were good, temporary channels to place money in reserve, knowing that it could be removed at any time without a loss of principal. But a quick look at money market yields shows that rates have dropped precipitously. The best money markets yield 1.5%, if that. What's more, many money market funds have dipped to values less than the traditional "one share for one dollar" calculation.
It's time to think outside of the box.
Acknowledging that you're not my financial adviser, and that any questions should be vetted with a qualified professional, what are solid, safe investments that can be used for parking funds to access at a later date? Ideally, these investments should deliver a steady yield--preferably of 2% or more--while preserving the underlying capital. One example might be a short-term bond fund, such as Vanguard Short-Term Investment-Grade (VFSTX). Vanguard seems to offer a 4.41 yield, has a low expense ratio, and has maintained a steady NAV for many years.
What other bond funds offer the same mix of preservation of capital combined with a consistent yield? Also, looking outside of bonds, what other investments might be comparable in delivering a solid yield with minimal risk to the underlying capital? Bond funds, treasuries, CDs, little-known high-yield money markets--everything but "fine art and land" is fair game.
Through the end of, say, 2007, many money market funds delivered a yield of around 4 or 5 percent. These were good, temporary channels to place money in reserve, knowing that it could be removed at any time without a loss of principal. But a quick look at money market yields shows that rates have dropped precipitously. The best money markets yield 1.5%, if that. What's more, many money market funds have dipped to values less than the traditional "one share for one dollar" calculation.
It's time to think outside of the box.
Acknowledging that you're not my financial adviser, and that any questions should be vetted with a qualified professional, what are solid, safe investments that can be used for parking funds to access at a later date? Ideally, these investments should deliver a steady yield--preferably of 2% or more--while preserving the underlying capital. One example might be a short-term bond fund, such as Vanguard Short-Term Investment-Grade (VFSTX). Vanguard seems to offer a 4.41 yield, has a low expense ratio, and has maintained a steady NAV for many years.
What other bond funds offer the same mix of preservation of capital combined with a consistent yield? Also, looking outside of bonds, what other investments might be comparable in delivering a solid yield with minimal risk to the underlying capital? Bond funds, treasuries, CDs, little-known high-yield money markets--everything but "fine art and land" is fair game.
If you want safe, you won't get a good yield. For now, I'd recommend avoiding tying up your money in anything long term and just accept the low rates. They'll come back up again in due time and you don't want to be locked in at 1% when returns and savings accounts are paying 5% again.
Also, while the raw yield may look bad, inflation is currently low, so the real rate is better than it seems.
posted by justkevin at 6:18 AM on September 9, 2009
Also, while the raw yield may look bad, inflation is currently low, so the real rate is better than it seems.
posted by justkevin at 6:18 AM on September 9, 2009
Through the end of, say, 2007, many money market funds delivered a yield of around 4 or 5 percent...But a quick look at money market yields shows that rates have dropped precipitously.
So has the rate of inflation; in real terms, money market funds give you roughly what they used to give you. People tend not to consider inflation when they think of these things, but it's important.
posted by smorange at 6:23 AM on September 9, 2009
So has the rate of inflation; in real terms, money market funds give you roughly what they used to give you. People tend not to consider inflation when they think of these things, but it's important.
posted by smorange at 6:23 AM on September 9, 2009
Uh... at this very moment I can get a 2-year CD from my local bank at 2.3 percent APY. Long dated treasuries are also higher than your target. But they're also long dated. Small investors can participate in treasury auctions after close rather than bid, skipping the broker fees you'd normally rack up.
I haven't checked recently until this question, but corporate bond yields are still high. The St. Louis Fed publishes data on bond returns, and it looks like AAA is currently paying 5 percent. Of course, AIG was AAA before they completely fell apart.
It's important to remember that in an efficient market high returns imply high risk. As you've noticed, bond funds re-learned this lesson the hard way in 2007.
posted by pwnguin at 6:25 AM on September 9, 2009
I haven't checked recently until this question, but corporate bond yields are still high. The St. Louis Fed publishes data on bond returns, and it looks like AAA is currently paying 5 percent. Of course, AIG was AAA before they completely fell apart.
It's important to remember that in an efficient market high returns imply high risk. As you've noticed, bond funds re-learned this lesson the hard way in 2007.
posted by pwnguin at 6:25 AM on September 9, 2009
GNMA fund.
posted by eas98 at 7:32 AM on September 9, 2009 [1 favorite]
posted by eas98 at 7:32 AM on September 9, 2009 [1 favorite]
Foreclosed houses at auction. Not everywhere e.g. Phoenix or Vegas, HELL NO. But there are some cities it makes sense e.g. $20-30K for a house last sold for $150K+ c. 2007 (and $70-$80K in the late 90s, which seems like a reasonable baseline price will return to).
Find a tenant and it can pay for itself in a couple of years, with the appreciation on top.
posted by momentofmagnus at 7:42 AM on September 9, 2009
Find a tenant and it can pay for itself in a couple of years, with the appreciation on top.
posted by momentofmagnus at 7:42 AM on September 9, 2009
Discover Bank has a savings account that yields 2.00%. There's probably other online savings bankers that do the same.
posted by ignignokt at 8:53 AM on September 9, 2009
posted by ignignokt at 8:53 AM on September 9, 2009
Welcome to the house that the Federal Reserve built - Banks are saved by destroying the earning ability of savers.
If you don't mind closely monitoring your money and jumping around to different banks constantly chasing promotional yields:
Fatwallet.com Best Nationally Available High APY Savings Accounts thread, top post is updated constantly - http://www.fatwallet.com/forums/finance/783099/
posted by de void at 10:01 AM on September 9, 2009
If you don't mind closely monitoring your money and jumping around to different banks constantly chasing promotional yields:
Fatwallet.com Best Nationally Available High APY Savings Accounts thread, top post is updated constantly - http://www.fatwallet.com/forums/finance/783099/
posted by de void at 10:01 AM on September 9, 2009
"It's time to think outside of the box."
If you want to lend money to me, I'd be willing to pay you more than 1.5%.
posted by Jacqueline at 12:23 PM on September 9, 2009
If you want to lend money to me, I'd be willing to pay you more than 1.5%.
posted by Jacqueline at 12:23 PM on September 9, 2009
I wouldn't consider that a relatively safe investment, Jacqueline.
posted by Risiko at 10:10 PM on September 9, 2009
posted by Risiko at 10:10 PM on September 9, 2009
This thread is closed to new comments.
posted by mary8nne at 6:06 AM on September 9, 2009