Where Else But Treasuries?

Putting money anywhere is risky these days. Getting any kind of decent return without a whole lot of risk is almost impossible. Treasuries yield nothing, and if inflation hits, as it surely will, even the value of the principal will drop. CDs seem to be the best bet to get some kind of safe return, but these rates are dropping fast. There is a whole range of other options from TIPS, Strips, corporates, high yields, agencies, and preferreds, but all these are either less safe or yield no more than treasuries. Only municipal bonds offer an alternative, but one has to be careful here too.

Yields on municipal bonds, depending on maturity dates, are about the same or better than CDs. And, recent developments have been positive for municipals. Specifically, Obama’s Stimulus Bill and Budget both help municipalities and protect most of them from default – at least for a year. The two most important rules when investing in municipals is to be conservative and to diversify. Buying general obligation bonds (these have the first claim on state revenues) and diversifying within a state and nationally will protect the investment substantially.

Of all the investments that are safe and that offer some yields in these cash-starved days, CDs and Munis are the best. Munis carry a bit more risk, but these are minimal if you follow these two rules.