Well, Cathy; howdy. How does your garden grow? With silver bells and cockle shells.... Okay, away from the nursery rhymes.
Personally, we do not and find no reason to hold any CD at this time; as the end result is almost as bad as some investments, as the "real return" is negative when factoring inflation; and worse yet if the CD's are held in a taxable account. As to recession; I do believe it is still in place.
This would be my "convince" choice for a spouse or friend who is "itchy" about the markets:
A plain jane TIPs fund. Yes, I see the head shakers; but:
TIP, 3 year chartTIP, M* performance pageThe below article just popped up a few days ago.
TIPs in a brave QE3 worldTIP is representative of many managed TIPs funds; although, be aware some of these funds many also have up to a 20% exposure to corp. bonds; but generally AAA issues.
Many of the Real Return funds have either the ability or true exposure to TIPs holdings.
Not all TIPs active managed funds will perform in line with TIP; as managers position the holdings among duration types. Direct exposure to this area may be had via funds as:
STPZ or LTPZ.
TIPs, being U.S. gov't issues, of course; may provide and have proven of value when global markets as "itchy" about "things". May of 2010 and 2011 were itchy times; as well as August of 2011 with the downgrade of the U.S. credit worthiness. You may view these time periods in the 3 year chart for TIPs reactions to these events. May, 2010 through July, 2010 found about a + 2% and March, 2011 through Nov., 2011 found about a + 11%. Will there be swings? Yes, not unlike any other area. But, the price swings (for the past 4 years) won't cause one to spill their glass of wine onto the linen table cloth. :):):)
Yes, there will be those that think one is a fool to invest in an area that has a negative yield. The negative yield comes from "demand"; which, of course, drives the price upward. Our house does not hold TIPs for the benefit of yield, but to obtain the capital appreciation from the upward price. This is the driver with many bond funds today; not just a yield. Currently, our house will take both......thank you.
One other area of consideration, is low duration bond funds. I know there are other likely candidates; but my choice today (without further research) would be PLDDX. I note low/short duration, versus funds that may be named ultra-short bond funds; although some of these may do well, too; and may indeed have similar holdings. PLDDX also has a track record involving the 2008 market melt (- 1.6% ).
I know you are very good at digging into choices. Do not forget the easy finder here at MFO, from the gracious
Accipiter; being the drop down menu of Resources at the MFO title bar.
Select navigator, in the "fund" box area, begin typing "inflation" and the TIPs related funds list will begin to populate. Do the same for the words "low duration" or "short duration".
The lists may not be totally inclusive, but fine lists, regardless. Obviously, you know of other methods you have used to find fund types, by naming/investing style.
Some of this was going to be a "Funds Boat" write, but your question finds the note here and now.
Lastly, TIPs can't and won't fix everything for a totally sleep easy investment sector. Rising interest rates will play into this area, too. As the global economy is still broken, our house doesn't have any problem with monies in this area, today. While there are many multi-sector bond funds that one may consider as a "core bond fund", I would also currently place a TIPs fund with a decent, long term track report into this area for some of one's holdings. The above 3 year chart may not be the best that one could find; but the 50, 100 and 200 lines tell some of the story, eh? One surely could do a lot worse.
If you choose to invest the Roth monies into TIPs, you may choose to use the TIP etf and obtain the lower E.R.
Disclosure: Can't fully determine via M* analyze; but about 15% of our bond portfolio mix is involved in some form of TIPs.
Gotta get back to work.
Take care,
Catch
