I agree that if you can get 8 percent treasury rate and Big Insurance company is guaranteeing 3 percent on your variable annuity, you are not to take it. Now however we have different times. deflationary times. I am not an annuity expert or recommend any specific company. annuities are however are sold by the billions and you can't convince me that all those are dumb buyers. With the similar notion CD's are not a good buy considering money market unless you have a million and want guaranteed against losses. then you open 10 11 accounts in a dozen banks.
Bill, I would strongly recommend considering US Government Series I inflation indexed savings bonds. Preservation of capital and purchasing power are two important factors heading into retirement. Here are the benefits: -highest available credit worthiness (if the US govt. stops paying its debt, your problems will be a lot bigger than what investments you purchased) -state tax free -tax defered earnings...pay no taxes until you cash them in. -bearer bonds, no broker can run off with them -principal fully guaranteed-value does not move up and down with interest rates. -pay a fixed percent (set at the time of purchase and currently 2%) OVER the compounded inflation rate for the life of the security. One of the few perfect inflation hedges. Might not seem important now with inflation low, but better to buy insurance before your house is on fire. -free put option: I bonds pay a fixed rate over inflation for up to 30 years, but you can cash them in after 6 months by foregoing only 3 months of interest, or after five years with no penalty at all. So if you need the money or if the interest rate spread to inflation goes up on new purchases, turn them in at any bank. For example, I purchased some a few years ago at inflation + 3.375%. If the spread goes back out you will take no loss to switch to the new ones after 5 years. The Treasury also issues marketable inflation indexed notes, and while the rate is typically somewhat higher than the savings bonds, they are more suitable for tax free or deferred accounts. In fact, outside of tax preferred accounts they are NOT a good hedge against high inflation. The marketable notes and some trading, have made up the majority of my IRAs for the past two years. One
I don't think that comes even close to solving the Problem; "I don't mean something long term, just a place to park the cash for anywhere from one day to about a week max."
I have a question for you: Who guarantees that what the US government calls inflation will reflect the average individual's situation, or for that purpose, any individual's situation. All I know is that over the past 2 years my cost of housing, food, energy, laundry, and transportation has certainly increased by more than 15%, and that without any change in quantity or quality of the items purchased. And I don't even want to go into less basic needs and wants. Don't you see the very real danger that ten years from now "official inflation" will have stayed so low that your I-bonds will not even have increased by 20%, yet you will be paying $14.99 for a fast food burger and a coke, $2.509 for a gallon of gas, 100% more rent or property tax, etc. ?
you can get from 5 to 8.5% from number of securities like treasury notes. get something A-AAA rated, it should be save enough. any company like prudential or something like that will be happy to help you. One of my friend portfolio been keep very well thru those years.
mtx, I was replying to the original post, not the subsequent question of where to sweep excess trading funds. Lobster, A good question and you are right that CPI might not reflect your particular situation. Expenditure patterns, and hence rates of inflation, vary dramatically by family size and income. CPI only reflects the expenditures of a family of average size and income. For example, regarding housing, keep in mind that there are many many families who have stayed in the same home and refinanced with lower rates over the past few years, effectively lowering a major expenditure. Early in my career, I helped design cost-of-living models used by the US govt. and the UN, and know first hand that they take great care to ensure the integrity of CPI. This does not mean that their models or data are perfect. The best part about I series: there is a put option at full value. It is essentially a 6 month security, with a higher yield than any other similar high quality credit instrument and the other benefits I noted. So if the govt. screws up CPI or a better hedge against inflation comes out, redeem the I series and purchase the new one. O.