……But where to put the cash. A checking account will only pay you a fraction of a percent interest — no thanks. Treasuries are safe but do not pay much either unless you invest long term. What I decided to do was find an Exchange Traded Fund (ETF) that allowed me short term liquidity, security, relative stability and paid a higher yield. I also liked the idea of an ETF because it allowed me to keep the funds in the brokerage account and I could still keep score.

What I decided on was the Vanguard Total Bond Market (NYSE: BND) ETF. It is currently paying a 4.15% yield and I can trade shares anytime to get cash.

I selected this ETF because Vanguard charges the lowest management fees. This ETF blends short term (1-3 years) intermediate term (3-5 years) , medium term (5-10 years) and long term bonds (10 or more years) in large numbers so you have size and diversity. This reduces volatility and increases safety.

The following chart indicates the current distribution. Notice that only 11% of the funds are in long term positions. This is a good thing in a market where U.S 10 year treasury note rates have been going up.
 Total Bond Market ETF
Under 1 Yr 0.9%
1 – 3 Yrs 34.8%
3 – 5 Yrs 31.3%
5 – 10 Yrs 22.0%
10 – 20 Yrs 5.3%
20 – 30 Yrs 5.6%
Over 30 Years 0.1%
Total 100.0%

You can also buy ETF’s that focus on treasuries but the yield will be less. If the market continues to move up rapidly you will be sacrificing some potential gains. However, the added security is well worth it if you want to be more confident of surviving the present economic storm.

Full Story:  http://www.bloggingstocks.com/2009/05/20/serious-money-etf-thats-better-than-cash/

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