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Investors looking for yield right now are having a tough time of it.
What are your options?
Short-term savings rates are desperately low. The government is keeping official interest rates low to help stimulate the economy, and that feeds through to your bank or money market account. You can get 2.4% on a one-year certificate of deposit, according to Bankrate. But you are probably better off avoiding long-term lock-ins, and waiting for better opportunities.
Ten-year Treasurys yield about 3.8%, after briefly touching 4% this week. That's a lot better than a few months ago, but don't be fooled: It's still a gamble that inflation will stay low. You should really only buy these bonds if you are confident annual inflation will average less than 2% a year for the next 10 years (Otherwise, if you had to buy a ten-year Treasury bond, you'd buy the inflation-protected ones, known as TIPS, and lock in 1.9% plus the inflation rate.) If consumer prices surge, and they very well might, conventional Treasurys will fall in price and lose value in real terms.
Municipals may be bit more attractive than nominal Treasurys, especially for higher-rate income taxpayers. An exchange-traded fund like the SPDR Barclays Capital Municipal Bond fund (TFI) is yielding 3.84%, tax free. But you also have an inflation problem. Most of the fat yield comes from longer-term bonds, also at risk from rising prices.
Some municipals are slightly better. But anyone locking in long-term rates by purchasing a bond is taking a |
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