They also have similar funds for general investing, i.e. non-retirement, in which you can choose among options ranging from very aggressive to very conservative; again, as funds of funds they are as easy as it gets in terms of diversifying your portfolio and managing your risk & hoped-for returns.

Not all states produce enough publically traded bond activity to satisfy investor demand so Vanguard has just 5 state-specific (CA, NJ, NJ, OH, PA) money markets and one nationwide tax exempt. If you live in one of the 5 states and buy the MMF from that state, you are exempt from federal, state and local income tax on the interest earned. Money placed in a nationwide fund or a state not yours will be exempt from just federal taxes.

What this means is the effective interest you get depend on your tax rate. Suppose you rarn 5% in an online bank account. If you pay 35% on that 5%, you earn an after-tax 3.25%. Which means a MMF that is exempt from taxes ends up being a better deal for a 35% tax bracketer at any rate higher than 3.25% compared to the 5% online bank.

There are more complications to do with standard deduction and AMT but above is the basic concept. The below article has a more complete explanation and a calculator where you can enter 5 different types of money markets and bond funds to compare them.

http://thefinancebuff.com/2007/04/which-vanguard-money-market-fund.html

So which country has better personal investment environment? I guess it depends on the expected investment duration.

Since I have to bank with Fidelity for my 401(k), I’m going to do Fidelity Freedom 2050. Well, I’m going to do a one-hour (or more) researching them before I’m sure.

But for my Roth or other IRA I plan to do 65% Vanguard 500 Index and 35% Vanguard Bond (the index for that, I don’t remember what it’s called now). And gradually shift the balance as I get older.

The market is almost schizophrenic when prices react to every bit of news, when the underlying companies, as you said, tend to grow in value over time.

You can do a search on “Lazy Portfolio” to find one of Paul Farrell’s article following several lazy portfolios designed by various financial advisors. Lazy portfolios help investors balance risk with reward by having a plan they can follow consistently. They also help keep people from acting from fear or greed. (buying based on a hot tip…or- oh no! the market is down 100 points! sell everything!) I follow the FundAdvice lazy portfolio.

I believe that your portfolio should include large cap, mid cap, and small cap index funds, and US and international funds in each category, as well as a certain % in bond funds. The equity-bond split should be determined by the number of years you have to retirement, as well as your risk tolerance. As a CPA, I have seen some inexperienced investors get into the market when it was hot, then sell at the first big dip- thus locking in their losses permanently!

If you do some reading on investing- I like the articles at fundadvice.com- you can learn to expect the dips and not panic when a normal dip happens.

The financial press makes a big deal about every drop- but they don’t mention that the market over a long time averages about 10% a year.

I also believe strongly that most people should start investing for retirement as young as possible, even before they pay off their debts (by which I mean, do both at the same time-save and pay off debts too).

Why? 1) If their employer contributes to their 401(k) it would be crazy not to contribute at least enough to get the matching contribution, 2)The time value of money is enormous- you lose a lot by not investing over a long period of time 3) it creates a savings habit and 4) It feels really good to have money/investments. It gives you a lot of security.

I pay 34.3% income tax so Vanguard CA Tax Exempt MMF is paying a tax equivalent of 5.57%. (Has ranged from 5.5%-5.8% the past year.) This beats all but FNBO’s teaser rate. Somebody in the 35+9.3 tax bracket taking standard deduction would get a tax equivalent rate of 6.57% which no online bank has come close to.

At the relatively the same rate, I’d much rather have my money at Vanguard versus an online bank because (1) no 6 transfer out limit per month, (2) same day purchase of Vanguard mutual funds with orders submitted before 1PM EST, (3) no way for a scammer to steal your account/routing # since there is no ACH out interface.

FWIW, Vanguard’s Prime Money Market is yielding 5.21%. I think it’s a solid place to keep cash for the long haul.

Well perhaps such a fund exists, but when comparing performance be sure to include fees and not just “returns”, also make sure that investments have the same risk profile as you would expect better returns for more risk. Then assuming you really have found such a fund, realize that their strategy/method/ability to beat the market can go away when one of their employees starts working at another firm who copies their idea.

Recommend book:
“A random walk down wall street”

Trent, I was wondering if you’d consider posting about health insurance. It’s such a high fixed cost, and navigating deductibles, co-pays, coverage percentages, and so on is confusing. I recently found my employer’s plan was worse than buying coverage myself — others might benefit from an explanation of their options.

I’m willing to be proven wrong here (and please, please let me know if you do find a money market account which pays appreciably better than the top online savings account), but I don’t think you’re missing out on anything, Beth.

I recall that Warren Buffet said something along the line of investing in index funds is the best thing to do because then you get to own every company. I don’t remember the exact quote, but that is the general idea.

A good one too.

Also, don’t feel bad about buying managed mutual funds. Just make your purchase wisely – index mutual funds are a wise choice :-). Remember, the mutual fund management companies hire people for their funds that are total experts in the kinds of companies in each fund. These are stock analysts, and they come to work in a car longer than your house.

Hey, next up, can you look at money market acounts as a potential alternative to high-yield savings accounts? In all the PF talk about ING, HSBC, etc., I never see people mention MMAs and I wonder if I’m missing something.