Welcome to the forum!
I'll work from the end toward the beginning.
kathanto wrote:3. Is there a way I can invest that will get my AGI below 35k?
Yes! Increase the amount you contribute to retirement accounts and make up the difference by drawing from your cash. Better still, live yet further below your means so you don't have to make up all of the difference
from your cash.
kathanto wrote:2. Why should I buy any bonds when bond interest rates are below inflation? I read the posts discussing Malkiel's alternatives, but I didn't really understand them.
Well, Toby, you're 25. I don't mean that as any sort of minimization of you, just that (probably) your whole investing life has been in a low-interest-rate environment. The reason to hold bonds is to provide stability to your portfolio. People say the word "safe." I've been doing that myself, but recently have come to realize all too many forum readers interpret "safe" to mean "like a savings account." If you have many decades in front of you (say you live to be just 85: that's 60 years) there is nothing to fear from presently low interest rates. Bonds are riskier than your savings and checking accounts, but less risky than stocks. Just because you contribute some of your salary now to an intermediate-term fund with, say, a 5-year average duration, doesn't mean you're doomed. Even if interest rates go up (and nobody
can predict interest rates with any time-bound accuracy, regardless of how loudly they try to sell you a Ford F-150) you'll wind up better off than you would have been had they not.
kathanto wrote:1. What should I do with all my cash? Ally has close to the best rates out there, and it is quite low. I'm probably going to buy a house in 5-10 years, so I want to be earning interest but still be able to access it.
Besides my earlier suggestion, if you need it in 5 - 10 years don't put it in stocks. You've already indicated a reluctance to put it into bonds given their present relationship to inflation. I'd say use part of it to enable you to target your taxable income as you want, part of it to buy Series I Savings Bonds
, and keep the rest in your savings account.