Wait long enough, and a lot of what one has in mind will be said. Thanks to Hank for his most recent post above about what cash means. That was some of what I wanted to point out - that if you're thinking about cash as something used for paying bills, you need stable (or very nearly stable) prices. But if you're using "cash" for asset allocation, you can tolerate fluctuations.
In the latter case, these days I wonder about the use of bonds at all (rather than cash) for ballast. Is 1% or so extra return over cash worth the extra risk? While some people are wondering how to get any return on cash, I'm wondering whether 2% on short-intermediate term bond funds is worth the risk. If one does want to take that risk, I'd look at FPNIX - it's always been non-traditional, using derivatives as much to preserve capital as to improve returns.
Back to cash. Regarding I-bonds - which I think are great for cash allocation but not day-to-day cash (since you can't redeem them for a year) - not only can you buy $10K/year/SSN from Treasury Direct, but if you have a refund coming on your 1040, you can buy $5K more using
Form 8888.
A similar idea to I-bonds (stable, insured, liquid albeit with penalty) is long term CDs. Many banks offer CDs where you come out ahead of cash even after a year or so (like an I-bond), even after penalty. But there are risks - being able to access your money (early withdrawal may be at the discretion of the bank), and interest rate risk (the bank could increase the early withdrawal penalty). Here's a
good post on that. The site (depositaccounts.com) also has a
CD calculator showing the net APY after penalty.
Comparing muni bond funds with RPHYX - BobC addressed this to some extent. He likes NEARX. I've been a little uncomfortable about the risk it seems to take (investing heavily in low graded states), but if memory serves, it seems to have cut back significantly on Illinois (lowest graded state), and generally gotten more conservative. Here's a nice
graphic on state ratings (you'll need to zoom in to read it well). But NJ's rating (5% of NEARX) has
dropped further than the graphic shows.
I tend to look at SEC yield, especially for investments that are not intended to be short term (i.e. used for monthly payrolls and the like) - this is a calculation that's designed to reflect total return (i.e. it accounts for increase/decrease in values of discount/premium bonds). Near the top of short term munis is Vanguard Ltd-Term (VMLUX, VMLTX), a more conservative muni fund that BobC has also suggested in the past as a conservative alternative to NEARX. I feel it offers better risk/reward, in the sense that even though its return is less, its risk is much less. And right now, its SEC yield tops most funds, including NEARX.
It does this, as you'd expect, with low costs. So its portfolio can be shorter term, and higher grade than any of the funds with similar SEC yields. Specifically, its average duration is 2.5
years, and average AA rated (M*). Its SEC yield is 0.86%. There are only two AA rated funds with SEC yields about 0.5% that are comparable - AUNAX (NTF at TDAmeritrade) 2.2 year duration, but high expense and high M* risk (volatile), and DFSMX 2.7 year duration, but 0.52% SEC yield and, well try to buy DFA funds.
Compared to cash (I use 1% as a baseline, since that's about what one can get in FDIC-insured online banks) and a 28% tax bracket, the expected return of 0.86% beats the 072% post tax cash return. Go shorter with munis and you won't beat cash; go longer and you'll be taking on higher interest rate risk that I feel pushes the fund too far away from cash. YMMV.
