Before I start let me please ask one thing: family and friends who know me well, please try to keep the snickering to a minimum as you read this. Here goes.
One of the requirements of my day job is working with our finance committee to figure out how to manage the association's money. Cash management is a given for any company, but like many non-profits we have emergency reserves that we have to manage and make sure they will indeed be there for a rainy day. (The thought of me managing emergency reserves is what probably has my family and friends snickering since I'm the same guy who in college, and the ensuing years until marriage, managed his checking account via ATM. If there was money there I took it and if there wasn't I just shrugged, wondered where the hell it had all gone and resigned myself to eating peanut butter until the next payday arrived). The association's bylaws limit what we can do with the reserves so there's really not a lot of thinking to do. We just have to find the best possible return in money market funds or CDs and we have to make sure they are structured so that they're fully insured. Here's the rub: CDs and money market funds currently have rates that range from zero (that's right, nada) to one or two percent. Unless inflation stays that low then our money is effectively losing value as it sits in the bank.
All that's to say that if you have financial reserves with which you need to play it safe then you're going to have to accept break even as a good deal for the time being. Along those lines Fred Wilson has a very pertinent and must-ready post here.
We have a 1.1% APY through an ING savings account. Not great, but there as a liquid savings point. If you might need to spend the money soon, then you’ll never earn much of a ‘real’ interest rate.
Break even beats getting broken in half.
You got that right Jim. BTW, that was an impressive exchange with Brod over at Cones. Lost me about halfway through, but still impressive:)
If I couldn’t keep a disinterested observer reading till the end, I didn’t do a good enough job. I was working on west-coast pre dst, so midnight felt like 8pm, plus 3 glasses of wine…
The issue is important, and interesting, at least to geeks like me. Discussions like that are what I looked to blogs for. Actually it was for book discussions. Come to think of it, that was a book discussion, just neither me nor Brod have read the book yet.
Have a look at using the TIPS (Treasury Inflation Protected Securities). The coupons are also low, but when inflation rolls around, their value increases. They are US Treasuries, so you won’t run afoul of your bylaws. If not individually purchased there are no load funds such as AIAVX.