Sunday, April 23, 2006

Question: where to put my extra cash?

This is a tricky one.
The most critical priority is liquidity for about 50% of it and near-liquidity for the balance.

A small portion is currently earning 4% in a full service bank MM locally - I'll keep it there for immediate needs (20%).
The balance is in an emigrant account earning 4.5%.
Should I keep all of it there?

Should I put 40-50% of it somewhere else that might either be tax advantaged or yield higher?

These are the considerations:

  1. ibonds
  2. tax free (atm free) muni's, I'm most seriously considering T. Rowe Price's Tax Free Income muni mutual fund. It's paying 4.42% federally tax free. I think that's the taxable equivalent of 6.4% (yield divided by (1.00 - tax bracket .31 in my case)). Not bad.
  3. Treasury Bills - state and local tax free but not fed tax free. Mymonyeblog has a nice description on how to do this. 28 days isn't too long a lock up period, I could handle it.
  4. keep the money in 4.5% at emigrant

Any advice?

I'm concerned that the bond market may have a certain amount of principal risk, but feel I don't understand it well enough - I might call T. Rowe Price to see if I can't talk with some of their portfolio managers - that would be fun. But would I get through?

Your recommendations appreciated here.

Have a wonderful Sunday,


No comments: