Bonds vs CD allocation

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Topic Author
db55
Posts: 46
Joined: Fri Mar 19, 2010 5:15 pm

Bonds vs CD allocation

Post by db55 »

I have a significant chunk of cash in my money market fund that I need to invest and that I want to apply to the non-equity part of my portfolio, ie either bonds or a bank CD. I already have a large equity stake.

Also, my tax rate is high and I live in Califonia (my total marginal tax rate is ~42.3%; the CA tax is not deductible because I always owe AMT).

Normally, I would put this into my Vanguard California Intermediate-Term Bond fund since it's tax free for me (current SEC yield is 3.42% according to Vanguard) . However, I'm concerned that since interest rates are so low, the total return over the next 2-3 years could either be extremely low or even negative (I'm thinking that interest rates will rise over the next 2-3 years since they are currently at historic lows).

I'd be very interested in your opinions on whether to invest in bonds or CDs over the next 2-3 years. Also, if you recommend bonds, what are your thoughts on doing a lump sum investment into bonds vs dollar cost averaging?

I appreciate your help. Thanks,
DB
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