nronronronro-ga,
I have three ways to meet the requirements you defined in your
Question, one of which was mentioned by a Commenter, although not in
any detail:
1) Buy a U.S. Treasury bond (it need not be a zero coupon bond) with
maturity in the range you want - 3, 4, 5 years, whatever. Then you get
exactly the purchase yield of the bond if you hold it to maturity, and
there is no default risk. U.S. Treasury bonds of any maturity
available can be purchased in any ordinary brokerage account on the
open market for a small commission (usually $25 to $50).
Strictly speaking, a regular U.S. Treasury bond could vary slightly
from the purchase yield return because the interest paid out every 6
months could be reinvested at a different rate from the original,
particularly if interest rates rise or fall dramatically in the
interval before maturity. But this is pretty picayune as a concern
when you're talking about only 3 to 7 years, and anyway the individual
might prefer getting interest along the way instead of waiting until
the end in the case of the zero coupon bond.
Note that tax on the interest on a zero coupon bond in a taxable
account has to be paid annually even though the interest is not
received until maturity.
From First Union's Bond page, featuring a Wall St. Journal article on
U.S. Treasury Bonds:
http://personalfinance.firstunion.com/pf/fpg/0,2915,632_637_643_705,00.html
2) Another idea is to purchase a U.S. I bond (U.S. gov't. Inflation
Indexed bonds can be bought at any bank). These are like the TIPS I
will cover below, but are not marketable securities (you can only
redeem them back to the Gov't., but can't sell to another individual).
These have the advantage of paying a known real return on top of being
inflation indexed (inflation indexing not known in advance, but hardly
to be objected to). I bonds have a maturity of 30 years, but can be
redeemed any time after 6 months. But keep in mind here that if you
redeem an I bond before it is held for 5 years, there is a penalty
amounting to 6 months worth of interest.
Because of the way I bonds are sold, they can be bought by
individuals, but not in IRAs or brokerage accounts.
From Bridgewater's website, "Inflation Indexed Bond Research" page:
http://www.bwater.com/research_ibonds.htm
3) TIPS-- U.S. Government Treasury Inflation Protected Securities
(known as TIPS). TIPS pay a fixed "real" interest rate, plus their
value also increases according to the CPI inflation index. So there is
no risk to losing from inflation with this fund, unlike other bond
funds
Vanguard Inflation Protected Securities, symbol VIPSX,
http://finance.yahoo.com/q?s=vipsx [link to Yahoo! Finance VIPSX quote
page--note related articles on inflation-linked bonds], is a fund that
invests in TIPS, although in your situation you'd almost surely want
individual TIPS, not a fund that invests in TIPS.
The earliest maturity TIPS available matures Jan 15, 2007, and every
year after that. So that's about 4+ years from now, which is within
your time horizon.
Here is a link to TIPS information and further resources, from
Investopedia.com:
http://www.investopedia.com/terms/t/tips.asp
Google search strategy:
Keywords, "US treasury bonds"
://www.google.com/search?hl=en&ie=ISO-8859-1&q=US+treasury+bonds ,
"US Inflation Indexed Bonds"
://www.google.com/search?q=US+Inflation+Indexed+Bonds&hl=en&lr=&ie=ISO-8859-1
,
"Treasury Inflation Protected Securities TIPS"
://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=Treasury+Inflation+Protected+Securities+TIPS
Please let me know if you require any clarification on this
information.
Good luck in continuing your inquiries!
~omniscientbeing-ga |
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