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2015-02-25 Where to Park Your Cash

Dear Mr. and Mrs. Smith

"Where to Park Your Cash" was the title of an article in the Wall Street Journal, dated February 21, 2015, which reviewed the available fixed income alternatives for cash management. The challenge is the current meager returns on these traditional investments.

The days of a reasonable return on virtually "risk free" cash investments are just a fond memory. Interest rates will eventually increase to normal historical levels. However, fixed income investments will decline in market value in direct response to the length of their maturities. For example, a five year U.S. Treasury bond will decline approximately 3% for every 1% increase in future interest rates offsetting the interest income. Certificates of deposit which are insured by the FDIC are only offering 2% for 5 years. Retirees can no longer live off these cash management alternatives. They will need to use principal to supplement these low interest rates.

Last year TIA developed a Shorter Call Preferred Portfolio (SCPP) as a cash alternative with the following characteristics: average coupon 7.45%, 4.15% yield to call with 19 months of call protection and a current yield of 6.99% as of February 20, 2015.

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