AssetBuilder - Registered Investment Advisor :: Simple Investing Smart Future

My husband & I have $150M we want to invest for short period of time (1 - 2 yr).  This is $ that we will use, along w/additional funds, to build retirement home.  Our broker suggested Franklin High Yield Tax Free Income fund w/o sales charge.  We're concerned about the negative return of this fund in last 2 yrs. and was told it was indirectly related to sub-prime nervousness.  This may be a good tax-free fund but require a longer investment time than we want.  Do you have another suggestion for our $ other than a CD @ 3% ?

Your broker is earning a commission and does not have your best interest at heart. Otherwise he would NOT suggest that you invest in a fund that has not one but two major risks.

It's called a high yield fund because it invests in bonds with significant credit risk. That means the municipalities that borrowed the money may not collect enough in taxes and fees to pay the interest they owe. They could default. Another risk is that the average maturity for this fund, according to Morningstar, is 18 YEARS. This means any uptick in interest rates could make a really major dent in your investment because the value of the bonds would decline.

If your broker was suggesting this as a portion of a large portfolio it might make sense to take this kind of risk.

But you have a very specific purpose for this money and you're going to need it over a very short period of time. That means you need to concentrate on safety of principal and accept the lower interest income that comes along with safety.

Scott

Scott,

This is much appreciated.  Your second paragraph was an education for me and explained more to me in fewer words than our broker or the Franklin rep.  I apologize if it was a trivial query, but I needed/wanted assistance.  We decided to go the route you suggested - safety of principle/low int.

Thank you!