jdbst56@[EMAIL PROTECTED]
writes:
> I assume that a fund like VFSTX would be exempt from federal tax but
> not state tax (PA tax is 3.07%)?
No, it's the other way around: US government bonds are exempt from state
tax, but you still have to pay the feds. (A national short muni bond fund
would be exempt from federal tax but you'd still pay state tax.)
> It seems to me that the general consensus says that it is not worth it
> to try to squeeze an additional 1-2% at the risk of principal loss.
> For the sake of argument, at what point is it worth it? Maybe it
> never is? If one had 100k in liquid savings, would the risk be
> warranted to invest the "non-emergency" ****tion of those savings in an
> effort beat the normal CD/savings return by using a bond fund or
> similar? Obviously there is a price to be paid for liquidity, and a
> true emergency should be kept in a low risk, liquid savings account.
> There is also a risk in trying to increase yield. But, is there not a
> risk in failing to capitalize on your non-emergency cash flow? For
> example, if inflation is at 4%, and one invests non-emergency cash in
> a CD or savings account that is earning around the same minus taxes,
> that person is losing money, no? I suppose the answer to this would
> be to invest in long term instruments like 401ks, IRAs, etc. However,
> maybe the point of this cash is for a rainy day type fund that isn't
> necessarily emergency but not retirement either. I suppose the cost
> to benefit ratio really isn't in favor of a mid term investment of
> this type, and probably accounts for the fact that many people only
> view investments in terms of short term emergency savings and
> retirement.
I think a large part of it is how much you have in the way of other
assets. If your $25K emergency fund is all you have, you probably
don't want to take any chances with it. If you have $250K in your
taxable investment account and your mortgage is paid off, losing
perhaps a few hundred dollars of pricipal if you have to tap into your
bond fund in an emergency seems like not such a big deal. If you're a
multimillionaire, you may figure, why take risks at all? and swing
back to keeping all your money in only the safest of investments.
-Sandra the cynic
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