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Mick Weinstein
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Mick was editor-in-chief and VP of Content at Seeking Alpha from November 2005 to April 2010. He's now the head of content at Covestor. Contact him by emailing mbweinstein (at) gmail.com or follow him on Twitter (http://twitter.com/mickwe) or on his Tumblog (mickw.com).
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  • Income investing in a zero yield environment 0 comments
    Mar 15, 2010 10:07 AM

    Venture capitalist Fred Wilson found himself with some incoming cash and wanted to park it in an interest bearing money market account. But there's just no interest in money market accounts now - zero percent.

    So what to do when your bank is paying you 0.00%? Well as I said at the start of this post, I like a portfolio of highly rated (AA and AAA) municipal bonds. In this low rate environment, I like the stub end of a long term muni bond that has a year or two left on it. You pay a premium to its face value to buy it and when it pays off, you will get less than you paid for it. But in the interim you'll get a decent tax free yield and all in, including the loss on the purchase price, over the one or two year hold period you can get 2% to 2.5% tax free. I don't recommend trying to buy these bonds yourself. Find a good manager who has been doing it for years to do this for you...

    rates are at historical lows. You can't really go below 0.00% without having to pay someone to take your cash from you. It's a dangerous time. Don't chase yields.
    Muni bonds are one option, but not everyone has such a manager available. What if you are recently retired, and after a lifetime of saving up enough principal to live off your investments' yield at this stage, you find that there's very little yield to be had even in safe, short-term fixed income? Meanwhile, inflation's running at over 2% - so selling other assets (with, likely, a tax bill) to enter munis at 2-2.5% doesn't seem so attractive.

    We thought this topic deserved deeper treatment on SA, and we wanted to open it up for discussion from our community. So please join us on Wednesday at 2pm EST for a live discussion with three money managers and fixed income experts - Roger Nusbaum, David Merkel and John Lounsbury - who will describe how they're advising their retired and close-to-retired clients at this stage, and will respond to your questions and comments.

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