Author Topic: Investing in government bonds  (Read 1247 times)

gillstone

  • Bristles
  • ***
  • Posts: 384
  • Age: 37
  • Location: The best state in the Union (MT)
Investing in government bonds
« on: October 02, 2015, 08:58:12 AM »
I've finally convinced DW to let me put a portion of our savings in something besides an account at Ally (we are fully funding our retirement accounts, this is just for funds that need to be relatively liquid).  It was a lift, her family was badly burned by the stock market and investing in general and her preference was to do nothing outside what FDIC would insure.  Getting her to the point where she was OK with me setting up an account with Vanguard was that the first 3,000-5,000 be in some form of US Treasuries.  The brokerage account is meant to provide us with a place where a portion of our general savings can grow at better than .85%, but still be accessible without penalty.  In theory, it will sit untouched except for once a year when we do our annual "big project" on the house. 

Because this has to be relatively liquid I'm looking at index funds/ETFs rather than individual bonds - my question is what term (short, intermediate, etc...) is the best fit given our need for liquidity?

After the first 3-5k the rest will be index funds that I'm still researching, but I'm open to suggestions on that as well.

TheOldestYoungMan

  • Pencil Stache
  • ****
  • Posts: 749
Re: Investing in government bonds
« Reply #1 on: October 02, 2015, 09:59:30 AM »
This probably won't be all that helpful, but I use a similar principle of setting aside funds for a future project in Vanguard, but I do it in an equities index fund.  If the balance tanks then I just delay the project/fund it out of new earnings.

I didn't used to do this, but as my overall stash and my skills to deal with issues through ways other than spending money have grown, liquidity is less important.  If I had an expected annual expense of between 3 and 5k, with little flexibility in timing of how to pay for it, I'd probably hold that as cash.  Offhand the only thing I can think of that would fit this bill is property taxes, but even that you can see coming a mile away.

DaveR

  • Stubble
  • **
  • Posts: 244
Re: Investing in government bonds
« Reply #2 on: October 02, 2015, 10:18:05 AM »
You earn higher yields for higher risk. Putting money into bonds will get you a higher yield than 0.85%, but also runs the risk of going down in value. Treasuries won't tank like equities, but they can and will go down and up. Generally, money you need in the year shouldn't be in the market.

You are looking to move "a portion of [your] savings" so I would view that "portion" in bonds as an investment that shouldn't be touched for 3-5 years. Best fit for liquidity? Cash.

gillstone

  • Bristles
  • ***
  • Posts: 384
  • Age: 37
  • Location: The best state in the Union (MT)
Re: Investing in government bonds
« Reply #3 on: October 02, 2015, 10:30:44 AM »
I will add a touch of clarification.  The full deal with DW to allow brokerage account was the following:

A savings account with our local (and mortgage-holding) bank: $7,200 (basically 6 months of mortgage payments in balance) 
A Money market account with Ally: minimum balance of $14,400

Between the two we can pay either 18 months of mortgage or a roughly year of living expenses.

Everything over that will be swept into the brokerage quarterly.  If the Ally account is below $14,400, then there is no sweep for that quarter.  Any windfall, tax refund, leprechaun gold, etc goes directly to brokerage assuming minimum balances are present. 

I would prefer more go to the brokerage, but I'll take the wins I have for now.