Treasury Notes. A good medium term investment? (bond, IRA, mutual funds)

[kanhawk]

I am looking for a good, relatively safe place to put money for 5 to 7 years. I am starting a fund to buy a new car in another 6 or 7 years and want to save about $20,000 or so, so I can pay cash for the car.
I just bought a new car for cash, so I want to start the process again, saving for the next one so I don't have to finance. Has anyone ever invested in treasury notes? Can you think of a better medium term investment?

[mysticaltyger]

Originally Posted by kanhawk

I am looking for a good, relatively safe place to put money for 5 to 7 years. I am starting a fund to buy a new car in another 6 or 7 years and want to save about $20,000 or so, so I can pay cash for the car.
I just bought a new car for cash, so I want to start the process again, saving for the next one so I don't have to finance. Has anyone ever invested in treasury notes? Can you think of a better medium term investment?

I'd recommend a short term bond fund instead. 5 year Treasury Bonds are only paying 2.18% as of last Friday. 10 year bonds pay 3.49%...but if you are gonig to seel the 10 year bond before it matures, there's a risk you won't get your principal back, as interest rates are very likely to be higher in the future.

The 5 year interest rate is really low. The 10 year isn't too bad, but you risk losing principal.


Personally, I'd buy a short term bond fund such as Vanguard Short Term Bond Index (VBISX). It buys a mix of short term corporate and government bonds. As interest rates go up, the fund will adjust over time. It's not risk free, but then nothing really is.

Since 1995, the fund has never had a losing calendar year, but that doesn't mean it never will. The fund's trailing 12 month yield is 2.10%. Not great, but likely to rise. Once you get to $10,000, they will convert your shares to the cheaper "Admiral" share class, which will give a small boost to your returns.

You can open an account here:

www.vanguard.com

Performance data here:

VBIRX Vanguard Short-Term Bond Index Adm, mutual funds, quote, price - Morningstar

[mathjak107]

for 30 years we had a bull market in bonds which just came to an end after bottoming out. rates are rising and bond funds are taking it on the chin.

vanguards short term bond fund has returned a mere .4% this year. if rates continue to rise you would be at a loss with little hope for years of being whole again.

to much risk of loss and not enough gain potential for my taste.

[mathjak107]

ginnie mae funds have done even worse with the recent rise in bonds leaving them down ( -).15% for the last 3 months even with vanguards who runs the lowest cost funds in the industry and rates are only up about 1% since then.the historical norms are way higher and thats scarey if your in a bond fund .

over in the retirement section we are having a discussion on just what retirees are supposed to do now that the cash generation part of a portfolio is dead in the water with no returns.
there was a 3 year AAA bond sale last week for a s&p 500 company that came in at 1%

somethings we are looking into are some low cost new insurance vehicles to provide the income and bear the risk of maintaining that income.

it aint easy out there anymore with conventional assets in a portfolio.