Stashing cash monthly for 1 year

Also, increasing yields typically mean an increase in risk. How much of your investment are you willing to lose? 5%? 1/3? And do you really need it in the one year timeframe? What the dollar makes a huge run just after the new President takes office and your international bond fund tanks?

-john-

"Shhhh" wrote

For investment grade bond funds and in general, yes. For international and emerging market bond funds, no. When you go overseas with bonds, then generally you are taking on much more risk and volatility.

You need to decide if this move alters your asset allocation plan so much that it is undesirable. Going from low risk to high risk will not be a free lunch. You have to be prepared for more swings, both in yield and principal, when you switch from cash to overseas bonds.

A chart that introduces one to this reality, from the late

1980s to the present:

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Unless the funds you're looking at hedge currency risk, that type of fund adds another layer of risk -- you're at the mercy of variations in the value of the US dollar. Recently this risk helped the performance of (unhedged) Int'l bond funds because the dollar has fallen:

falling dollar boosted the returns of bonds denominated in foreign currencies, for a US investor. The opposite happens when the dollar gains in value, so you could see losses larger than the interest earned during the year and most people don't want that for 1-year investment. The other issue, assuming you're buying high-grade bond funds (not junk or emerging-market debt) is the term of the bonds. Bonds of longer maturities are subject to potentially large price changes when interest rates change. For one-year money, where your goal is simply to do better than a savings account, the closest match would be a currency-hedged international bond fund with very short maturities (one year or less). I know of an institutional fund managed that way but it's kind of unusual. Realistically, you're not missing much - this type of fund should not do much better than a comparable dollar-denominated investment.

Because you're not investing a lump $48,000 now, but rather $4k over 12 months, any additional yield will have a relatively small impact on the value at the end of the pipe. If you really need all the money in a year, is it worth the downside risk?

-Tad

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[...]

Bonds and "bond fund" are not the same type of investment, don't confuse the two.

-Mark Bole

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Bankrate.com shows many banks with above 3% MM acct. rates.

If you already own a bond (not bond fund), if the interest rate goes lower, the price of your bond is likely to increase. The relationship between interest rate and bond fund prices are not so clear cut.

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I think that the phrase "this environment of lowering interest rates" suggests that although you may not realize it, you are trying to engage in market timing.

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I would look at spectrum income, if you can stomach a 20-80 fund. The yield is good, and it owns both bond funds you mentioned, plus many others.

disclaimer- I own this fund in my Roth and Rollover accounts.

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something along these lines to consider, depending on what you want the 48k for, and when in 2009 you need this money-

Each month open a 12 month CD of 4k. Each month in 2009 you will have a CD maturing. When you open each CD you will lock in rates available for that month.

Maybe it makes sense to open 7 month or 13 month CDs instead, or in Feb open a 13 month, March open a 12 month, April open an 11 month... so all 12 CDs mature the same month.

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In 2008 international isnt doing as well as domestic. This is a turnaround from the past several years.

The moral is not to focus on just one asset class because you never precisely know the winners and losers. The other cliche is that past performance is no guarantee of future performance.

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