lowest risk, highest yield, liquid investments
By boardsport - Posted on February 29th, 2008
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A friend sold his company and wants to just park the money and not have to worry about anything. He want's to have a access to it from time to time. Whats the highest yield, lowest risk investment vehicle where he could still get to the money if he wanted to? What is it and where to buy it?
Money market funds in "theory" should have no real risk - but over the past few years many money market funds have been reaching for higher yields and have been straying away from buying treasuries and other "good as cash" securities. Many have loaded CDOs, CMOs and other structured products and now many will have to write down these bad assets. Its very possible that many money market funds will trade < $1 (break the buck)
I'd suggest that he opens a brokerage account at a place like Fidelity and make sure he has check writing abilities. Look at what they use for automatic sweep of unused assets i.e. if they put it into a money market fund - then check the perspectus of that fund to make sure they aren't invested in the garbage. I'd also call or email that question and get it in wiriting. Once he has the account he can leave the cash sitting there making money market yields (3 - 3 1/2% now) he might also look at some other things - right now municipal bonds are paying a very large spread to treasuries - and they are tax free.
Good luck
I would agree muni's are probably the way to go - however do not buy muni funds. It is always better to create a 5 or 10 year ladder with your money - aka take 10% and buy bonds maturing in 1 year, 10% for bonds maturing in 2 years etc for a 10 year ladder. Take maybe 20% of the money and put into money market for easy access and safety. What WallSt said is very true - make sure the money market is legit - usually the tell tale sign is offering much higher yields than anyone else. If more money is anticipated to be needed short term, once a year a bond comes due (no matter what interest rates do), or you can simply liquidate some bonds if needed.
Any time you invest in a bond fund of any kind you run the risk of getting buried if the managers buy ther wrong things or make the wrong bets OR even if inflation goes nuts and yields skyrocket - the asset value will drop and you could not be even or close for many many years. Sure that could happen with individual bonds SOME, but you have some money maturing each year to reinvest at higher rates, if those are available. Also you are in control of what you own. Sure it takes a bit more work, but right now is great time to do some homework and pick up AAA rated muni with great yield - the main thing is to research what backs the revenues of the bonds you are looking at.
Hope this helps,
mucko
Thanks Wallstarb. Great Info.