Jonathan Clements wrote an article for
The Wall Street Journal which is published by Dow Jones & Co. (
DJ) on Sunday July 23, 2006. The article was titled "Three Smart Places to Stash Cash Now". Mr. Clements recommends the following:
- No-load short-term bond fund with low expenses
- Paying down your mortgage
- Inflation-indexed Treasury bonds
A no-load short-term bond fund makes sense if you believe the Fed is almost finished raising interest rates and may start lowering. If this proves to be wrong, you would lose value in the investment as interest rates rise. I would not recommend this option because the down side is high if the Fed is not through. Wall Street says this is at best a 50/50 probability right now.
I agree that paying down your mortgage makes sense. I quote Mr. Clements, "When you make an extra principal payment, you earn a pretax return equal to the interest rate on your mortgage. The higher that rate, the more attractive it is to make extra principal payments."
I like TIPS (Treasury Inflation Indexed Securities). They have fallen in value as interest rates have come up and inflation has failed to show up in the indexes. I personally feel they are still overvalued and I'm not sure this is the right time to buy them. If interest rates go up, they will fall in value some more and you will be able to buy them cheaper. If you decide to buy them, buy the shortest maturities. I would buy them from Treasury Direct instead of through a broker or in a fund. There are no fees that way.
What do you think the best thing to do with new money is right now?
Comment Preview