Yields on money funds and Treauries aren't inspiring much elation.
But there are still some ways to get some substantial yields on
money that would otherwise just sit there, as long as you know
where to look. Want a hint? Exchange traded funds (ETFs).
If you see higher yields on any investment, it usually means you
must take on more risk. But if you play it smartly, you can improve
returns without having to rely on the riskier options,
remarks Jane J. Kim for
The Wall Street Journal
. A portfolio that performs over the long-term starts with
diversity, since a drop in one area of the market is usually offset
by gains in another.
Graphic courtesy of The Wall Street Journal; click to
William Bernstein, who co-manages at Efficient Frontier
Advisors, suggests spreading out investments. For taxable accounts,
he advises a portfolio with 35% in Treasuries, 30% in muni bonds,
25% in short-term corporate bond funds and 10% in stocks. For
tax-exempt vehicles, he advises 45% in Treasuries, 30% in
short-term corporate bond funds, 15% in Treasury
Inflation-Protected Securities and 10% in stocks. On average, the
strategy would have resulted in annualized returns of around 4.8%
and 4.9% for taxable and tax-exempt portfolios, respectively.
Of course, the portfolio strategy Bernstein outlines isn't for
everyone. Kim highlights some options for investors who seek other
Safest bet: banks
. Deposits of up to $250,000 are guaranteed by the government, at
least until the end of 2013. Community banks offer higher yields
than those at big commercial banks.
Safe: inflation-protected bonds
. Series I U.S. Savings Bonds yield 3.36% and are guaranteed not
to lose value from inflation. Additionally, interest is exempt
from state and local taxes and can be tax-free for some if used
for education. Treasury inflation-protected securities (TIPs) are
another option, but it should be noted that investors have bid up
prices, pushing yields down. [
Bond ETF Alternatives After Interest Rates
Risky: bond funds
. High-quality bond funds provide better returns, but the value
of the underlying security declines as interest rates rise.
Short-term bonds are considered less volatile than long-term
funds, like those that have 10 or 20+ years to maturity. If the
Federal Reserve raises rates too quickly, short-term Treasuries
and corporate bonds could lag behind intermediate and long-term
bonds, comments the
Then there are also the multitude of ETF options available that
offer respectable yields. However, chasing down yields isn't
everything. It is best to have a strategy in place to keep yourself
in check. We use the 200-day moving average to determine when we're
in and when we're out. When a position is above its 200-day, it's a
buy signal. When it drops below or 8% off the recent high, it's a
sell signal. [
New Year, New ETF Strategy.
WisdomTree Dividend Ex-Financials (NYSEArca:
, 3.7% yield
Vanguard High Dividend Yield Index (NYSEArca:
, 2.8% yield
SPDR S&P Dividend (NYSEArca:
WisdomTree SmallCap Dividend (NYSEArca:
iShares Dow Jones Select Dividend Index Fund (NYSEArca:
Vanguard Utilities (NYSEArca:
, 4% yield
iShares Dow Jones U.S. Utilities (NYSEArca:
, 3.8% yield
iShares S&P Global Utilities (NYSEArca:
Rydex S&P Equal Weight Utilities (NYSEArca:
, 4% yield
iShares iBoxx $ High Yield Corporate Bond (NYSEArca:
SPDR Barclays High Yield Bond (NYSEArca:
, 11.8% yield
Read the disclaimer
; Tom Lydon is a member of the board of Rydex|SGI.
Max Chen contributed to this article.