Corporate bonds have higher yields, but don’t imagine that they will keep their value if interest rates go up. The yields on high quality corporate bonds are still lower than what they’d be if the economy were humming and interest rates were higher generally. Of course, you could go with the junk, but then you take a much bigger risk of default.
To tell you the truth, I took my extra cash and paid down (actually off) my mortgage. No risk in that, and saves me better than 6% per annum. The tax benefit for mortgage interest isn’t what it used to be because as a result of the recession, I’m earning less, and paying less in taxes anyway. If it were not for the fact that I had the opportunity to do that, though, I would probably have just kept my cash in an FDIC insured bank account until it looks like we’re actually headed out of the recession. I don’t think we are yet. GM and Chrysler are going to go bankrupt, and the stock market will take a hit on those days. In addition, their bankruptcies will have some subsequent fall out that cannot now be estimated with good accuracy.
You’re brilliant to pay off your mortgage, pun intended.
One more question. What about TIPS — they’re inflationed adjusted?
With this crew in power, all my cash is in First National Sealed & Buried Mason Jar. The interest paid by FDIC insured (cough, cough) savings accounts is minimal enough that I won’t miss it and this way I will at least have control of my access to my cash.