Saving in a low-yield world
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Personal savings rate could soar

High-yield one-year CDs are ranging from 1.1 percent to 2.08 percent. High-yielding money market accounts are running as high as 1.79 percent.

The average yield for money funds in the Crane's 100 Money Fund Index is 0.12 percent. Peter Crane, co-founder of Crane Data LLC, which publishes Money Fund Intelligence, says he thinks the drop in money fund yields is just about done.

"We may inch down a little bit more but this is pretty much the bottom. The Fed cut has been fully digested. Money fund moves follow the Fed, so if the Fed doesn't move, neither do these yields."

A mixed-bag portfolio

Keep what's necessary in fixed income and let the rest go to work elsewhere in the markets. Of course, what's necessary varies from person to person. If you're employed in an in-demand field and are in no danger of losing your job, then three months of living expenses may be enough. Others who don't have that job security will want a considerably bigger cushion. But letting fear dictate a cash reserve that's outsized is detrimental to your future financial health.

Brent Brodeski, managing partner at Savant Capital Management in Rockford, Ill., says his firm researched all of the bear market recessions going back to the Depression era. They looked at three strategies to determine which would provide the best outcome five years after the recession. The three strategies were having an entire portfolio of stocks, dollar-cost averaging monthly into stocks from cash or simply leaving it all in cash. They considered each strategy under different scenarios and in all cases, he says, the portfolio performed better under the two stock strategies. Cash was the worst outcome in every instance.

Brodeski isn't a big fan of cash even when someone is nearing retirement.

"The key is to have the three-legged stool," Brodeski says. "Have some short-term bonds, maybe one- to three-year maturities -- all high-quality. Have some intermediates, maybe in the three- to 10-year range, and then some inflation bonds. The combination of those three legs to your stool assures that not only will you have the income or interest that's produced by those bonds but also the dividends produced by your stocks. Have enough in bonds and cash so you don't have to sell your stocks at a loss."

When it comes to buying bonds, you can buy them individually through a broker or by using an online service such as Zions Direct. You can buy individual corporate bonds inexpensively through the Corporate Notes program at many brokers.

There are hundreds of mutual funds that package corporate bonds or Treasury bonds, or you buy them in exchange-traded funds such as iShares.

If you're interested in Treasury bonds or agency bonds, visit Treasury Direct.

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