Copy of Cash alternatives

NameRiskReturnMaturityInterest Rate ImpactTaxation ImplicationLiquidityComment
Treasury securities ("T-bills")
No risk. US can jack up taxes or print money to pay it off.
Quick! 4, 13, 26 weeks
Not much on the short term bills, much more on the long term debts
Generally free from state but not federal tax
Can readily find a buyer
Savings bonds
Inflation protected "I-bonds" offer attractive yields
Foreit 3 months of interest if you redeem in less than 5 years.
Not marketable, can't sell to another investor
"Set aside money", small denomintations (from $25)
Mortgage securities
Greater risk
Higher than US treasury
Underperform when IR falls, and bomb when IR rates rise
Fixed return on fixed annuities, and variable you'd expect variable.
Enable you to defer current taxes and capture income after you retire. Not advisable to those under the age of 50 who expect to be in a high tax bracket during retirement.
Watch out for brokers who sell these too expensively and the associated costs of ownership, e.g. "surrender charges". Look for rock bottom costs providers.
Perferred stock
Worst of both worlds investment. Less secure than bonds (2ndary claim to assets in bankruptcy). Less profit potential because companies will often buy back the shares when interest rates drop or credit rating improves. Also that company cannot deduct these dividend payments from its tax bill. Ask: why is this company paying a fat dividend, when they could issue a bond and get a tax break.
Common stock
Some leading stocks are outyielding treasury bonds
Even the most defensive investor should realise that selectively adding stock to a bond portfolio increases its income yield and potential return.