I'm searching for an asset allocation class that is "nearly" risk-free but will beat the rates offered by the risk-free online savings accounts. HSBC Directs 3.05% has a negative real-rate when inflation is factored in. Investment-grade Muni's pay in the neighborhood of 5% tax-free. What is the best way to purchase municipal bonds (direct, broker, etc.)? Any other suggestions for highest yield with negligible risk?
US bonds are horrible. especially with inflation most likely is understated. aud bonds have pretty good yields short term. euro could be good, again short term. inflation pressures could push up rates. i haven't looked into them, but i'm sure there's some pretty solid corp bonds and pref shares out there with 8%+ yields. i know some pipeline trusts have some nice yields.
US rates are horrible,compare to other countries. most of the countries with inflation rates >5% have CD rate >10%. SA for example.. 6 month CD in local currency 12-14%APR with inflation rate around 4% in US-there is no fixed income instrument, that have greater rate after taxes. savers are raped here with zero interest savings accounts and 2.5% CD's
Iguana & Bob, The scenario you mention opens the door for risk in currency fluctuations. If you hedge the currency risk w/ futures contracts, that (in theory) would negate the benefit of one countries interest rate bearing instrument over another. Interest rate parity says that the spot and future prices for currency trades incorporate any interest rate differentials between the two currencies. Otherwise, there would be an arbitrage condition. Maybe I don't have a complete understanding of the strategy. Could you please explain how it is executed?
the people who say this never made a dime other than writing books and teaching at universities. its a well know fact that currencies with higher interest rates tend to appreciate over lower ones, it doesnt work everytime, but over the long-run it works
of course there is a currency risks(which can work your way too). you can hedge, and they do open accounts for non residents, but i'm personally did not feel comfortable with few things in those SA banks. they don't have any insurance against bank insolvency and nothing can be done online( i mean buying securities or CD's),all orders have to be via email and fax only and when you do that-you have to fill a form,which basically saying, that the bank is not responsible for any errors or mistakes. so-if someone fax an order to send your money some place else-the bank will be not responsible for that. how do you like that? i don't
you have to be aware of currency changes for sure. since the start of the year i've liked the yen, swiss franc and aud. brazil and euro could give a well rounded portfolio of foreign bonds without being too exposed to a single currency going wacky. its more about the USD dropping tho... for americans, the cdn $ could be another good option, but our rates are low. currency has room to go up though