A three month Treasury bill pays just 0.12%. A two-year note pays just 0.79%. Inflation may not be very high at an annual rate of 2.6% for headline inflation (and 1.6% minus volatile energy and food prices) but it’s enough to eat up all the interest from those investments and more. (TIPS, Treasury Inflation-Protected Securities will protect you from inflation but the yields are really low (1.43% for a 10-year TIPS at recent auction) and they only protect you from inflation and not rising interest rates. I-Bonds, a savings bond that pays an interest rate that combines a fixed component, currently 0.3%, with an inflation-adjusted variable rate, current 3.06%, offer a higher yield but since the variable rate is pegged to inflation and not interest rates, the yield on these bonds won’t necessarily go up if interest rates do. You also have to hold for at least 12 months. (After that and until you’ve held for 5 years you lose the last 3-months of interest when you sell.)

You could lock your money up for decades and get 4.56% in a 30-year Treasury bond but 30 years is forever. And besides interest rates have to go up from today’s lows and that means bond prices will be coming down, probably fast enough to eat up all the interest that bond pays and more.
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Not if you remember that interest rates are going up in most of the world (except maybe Europe and Japan) quite dramatically over the next 12 months. A year from now, perhaps sooner, you’ll be able to get yields swell north of anything you can find now.

That pretty much means that you’re guaranteed to lose money two ways by locking it up for the long term now.
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For the short term you need to put your cash into something that’s as safe as possible but that offers you as much income as possible—and that doesn’t lock up your money for very long.

My choice dividend paying stocks—if they pay a high dividend, are extremely liquid, and are battle tested.

according to John Makin of the American Enterprise Institute, the country’s official economic figures — we’re talking the Chinese government’s numbers here and not those reported by individual companies — systematically overstate the speed of the country’s economic recovery.
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Investors don’t need to answer or even be interested in those philosophical questions. But they do need to consider the possibility that China’s huge acceleration in its growth rate is merely an artifact of the way the country keeps its books.

After that research, you could spend some time thinking about how Cisco fits into the post-recession, slow-growth paradigm that I laid out in my previous column. You’d likely conclude that Cisco would actually gain an edge from that kind of economy, because many of its products — from Internet protocol telephony to Web conferencing to its recent entry into the market for blade servers for data centers — offer customers a way to cut costs while retaining or improving functionality. That’s a solid value proposition in an economy where lots of customers will be looking for value.

Then you’d probably spend some time looking at the price trends in the market. If you did, you’d notice that technology stocks were showing relative strength by hanging above their January highs (in contrast to sectors that are fighting to get back to January highs). You’d also see from your study of the charts that Cisco shares were near resistance levels set by their 200-day moving average and their April high of about $18.50.
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None of that tells you whether the stock is reasonably priced. To figure that out, you might look at the average P/E ratio of the past five years. Because the average was 21.6, you could conclude that Cisco, at 14.1, was undervalued, since the price in the future will climb until Cisco trades again at something like 21.6 times earnings. Or you could conclude that the lower P/E ratio was a logical reaction by investors to the company’s falling earnings. Wall Street analysts now think Cisco’s earnings will fall 23.2% in fiscal 2009 and 6.3% in fiscal 2010.

Setting a target price isn’t a science. Where your target winds up is a result of the assumptions you make going in. I like to check the range of price targets for a stock and compare that with its current price. For Cisco, the range for a 12-month target price now seems to fall between $16 and $31 a share. At a recent $18.50 or so, Cisco has been trading above the most pessimistic target, but not by a great deal. Depending on your read for the market as a whole, that means Cisco is toward the cheap end of reasonable but not a compelling buy if you think, as I do, that this rally will yield to a correction in the next month or six weeks.

At 2.3% growth, the $14.4 trillion U.S. economy (as of the third quarter of 2008) would produce an increase in economic activity of $331 billion in a year. That activity would generate money we could use to pay off the debt we’ve run up to end the current crisis, to buy better education and health care, to protect the environment, to improve our living standards, to spend and, for a few, to save.
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the difference would get larger each year as the two rates were compounded. After 10 years at 2.3% growth, the U.S. economy would grow from $14.4 trillion in the third quarter of 2008 to $18.1 trillion, after accounting for inflation. At 3%, however, the U.S. economy would reach $19.4 trillion in gross domestic product.
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The official unemployment rate hit 7.2% in December. Factor in part-time workers who would like to work full time and discouraged people who have stopped looking for work, and the real rate is more like 13.5%.

Some of those people won’t go back to work even when this recession is over because the relatively meager safety net supporting the unemployed in the United States will have given way beneath them. They will have suffered so much personal and family damage that they will never regain their full pre-recession productivity.

Strategy #1: Stocks with current yields at 10% or higher where the dividend payout is sustainable at current levels for a decade or more. If the stock market recovers, of course, the dividend yield will drop, but you don’t care. All you want to know is that if you buy $10,000 in annual cash flow now, you’ll get at least $10,000 of annual cash flow in retirement.
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Strategy #3: Buy common stocks with solid dividends and a history of raising dividends for the long haul. That way you let time and compounding work for you. While you may be buying $1 per share in dividends today with stocks like these, you’re also buying, say, 8% annual increases in dividends. In 10 years, that turns a $1-a-share dividend into $2.16 a share in dividends.