With the stock market in a slump over the past two months (the S&P 500 has dropped 9% since July 31), now may be a good time to think about fixed-income investments.
The Federal Reserve has lifted the federal funds rate by a whopping 5.25 percentage points since March 2022. That has created many opportunities for generous yield in the fixed-income market.
Money-Market Funds
Perhaps the simplest income investment is a money-market fund. You can put money in and take money out with same day settlement. And you’re virtually guaranteed to get a share price of $1 if it’s a safe fund.
As of Wednesday, the Fidelity Government Cash Reserves fund, which I hold, yielded 4.99%. The fund is made up of government securities, adding to its safety.
Brokered Certificates of Deposit
These are CDs offered through brokers such as Fidelity Investments and Charles Schwab that have yields higher than what you’d get by purchasing them directly through the issuing banks. The banks are willing to offer more yield on the brokered CDs because they are able to sell their paper in bulk.
I own plenty of these through Fidelity, where a one-year CD from JPMorgan Chase yielded 5.7% Thursday, and a two-year JPMorgan CD yielded 5.5%. CDs are generally insured up to $250,000 per bank.
Bonds
You can get a decent yield through Treasuries, which are almost certain to pay out in full at maturity, and even higher yields on investment-grade corporate bonds.
The three-year Treasury yielded 4.86% Thursday, and an A-minus rated, three-year Morgan Stanley bond yielded 5.92%.
If you don’t have the knowledge to choose individual bonds, there are plenty of conservative bond funds, such as the Vanguard Total Corporate Bond exchange-traded fund (VTC) -).
There are plenty of more complicated options, such as floating-rate bank-loan funds. But these investments are more risky, and you really don’t need to take on much risk for a decent yield these days.
