Higher Savings Rate ?

[akmailman]

I am retired and have $100,000 in savings account collecting a gigantic .55% APR at my friendly
CU. Also have a Vgd GNMA account with a SEC yield of 3.15% and YTD return of 7.26%
if I move the 100g to Vgd I will get a substantial higher monthly dividend BUT since all dividends
are taxable, would this be a wise move? My tax bracket is 15%.
thanx in advance for any advice

[disneysteve]

I am retired and have $100,000 in savings account collecting a gigantic .55% APR at my friendly
CU. Also have a Vgd GNMA account with a SEC yield of 3.15% and YTD return of 7.26%
if I move the 100g to Vgd I will get a substantial higher monthly dividend BUT since all dividends
are taxable, would this be a wise move? My tax bracket is 15%.
thanx in advance for any advice

First, never let tax issues guide your investment decisions. Yes, you should consider taxes but they shouldn't be the leading issue. Besides, the interest on your savings account is also taxable at the same rate as the dividends on the GNMA fund.

You need to take a look at your overall portfolio allocation and how much risk you are taking. There is a big difference between a GNMA fund and a savings account. One is FDIC insured and can't possibly lose money. The other is not. As usual, more risk equals more potential reward.

Is it a wise move to go from a savings account to a GNMA fund? That really depends on the big picture, your time line, your income situation, etc.

[akmailman]

First, never let tax issues guide your investment decisions. Yes, you should consider taxes but they shouldn't be the leading issue. Besides, the interest on your savings account is also taxable at the same rate as the dividends on the GNMA fund.

You need to take a look at your overall portfolio allocation and how much risk you are taking. There is a big difference between a GNMA fund and a savings account. One is FDIC insured and can't possibly lose money. The other is not. As usual, more risk equals more potential reward.

Is it a wise move to go from a savings account to a GNMA fund? That really depends on the big picture, your time line, your income situation, etc.

Thanx for the advice. I am aware of the FDIC risk but have had a GNMA account since the early 90's and while the SEC yield
has varied I have never lost any principal amount - I know, "past performance is no indication of future results" but am confident in this fund - guess I'll just bite the higher income tax amount.

[disneysteve]

Thanx for the advice. I am aware of the FDIC risk but have had a GNMA account since the early 90's and while the SEC yield
has varied I have never lost any principal amount - I know, "past performance is no indication of future results" but am confident in this fund - guess I'll just bite the higher income tax amount.

The point I was trying to make was to not worry about the tax issue. My father, an accountant, always said it is better to earn the money and pay the taxes than not to earn the money. It doesn't make sense to pass up a 3% return in exchange for a 0.5% return just because the higher return will result in a higher tax bill. You'll still end up with a lot more money in the end.

Also, I didn't mean to imply there was anything wrong with a GNMA fund. You just need to consider where it fits in your overall asset allocation. It doesn't replace a cash account as it has different risks associated with it.

[orenwach]

You might also want to think about an online savings account, like Discover Bank, where you can get 1.00%. This is not much, but it is still more than you are getting

[Kooshiball]

Only problem of putting money in the bank is that saving in the bank is the sure way to lose money because inflation rate is definitely way higher than 1%... Yet, there is possibility of losing money if individual does not have enough knowledge about investment, economy and market. We are living in the strange economy where the way we used to invest is not working any more.

My suggestion is to gain knowledge of investing.

[toysmall]

Low risk of safety investment

Well, make a financial planning, beause there is always a risk. You can choose safe investment approach, such as bank savings, or is the fund investment. Never put your eggs in one basket