While the number is certainly rising, AMT still does not affect most high-bracket taxpayers. If you're not paying it, there's no point in avoiding AMT bonds; even if you are, a good, low-fee fund with a small fraction of its assets subject to AMT is likely to be a better choice.

ucsdgaspasser said:Granted, the base value can always decrease, so it isn't as 'safe' as a money market account, but the risk is generally low over the long run and the additional yield can end up being substantialThis is a more substantial issue, and one that many people don't get right.

Long-term bonds have higher day-to-day volatility than short-term bonds, but less long-term risk. If I know I won't need to withdraw money for 30 years, if I buy a 30-year zero coupon risk-free bond, I have zero risk. In contrast, if I buy "safe" short-term investments like T-bills, the amount of money I will end up with is subject to reinvestment risk -- it varies strongly with the level of interest rates over the next 30 years.

That is on top of the fact that longer term bonds almost always yield more.

If you are an interest rate market timer, then do whatever your timing tells you (which is unlikely to be a good idea, unless you have some enormous insight into the macroeconomic situation which is not available to the markets). If you aren't, you need to balance risks and rewards: if you're highly risk averse, match your portfolio duration exactly to your cash-flow needs; if you have any ability at all to take risk, your portfolio duration needs to be even longer.

And that can be quite long. If you're 35, plan to be a net saver until you retire at 65, and then to be a net spender, in rising amounts, until age 85, the average cash-flow duration is going to be in the neighborhood of 40 years. So if you're extremely unwilling to take risk, you want a portfolio with a duration of around 40 years; if you're willing to take more risk for higher returns, an average duration of 50 or 60 years is more reasonable.

In short, unless you are saving for immediate needs, or believe yourself to have superior information about the direction of interest rates, holding ANY cash is too much.