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Interest earnings from investments often are an important revenue source for governments. In today's markets, historically low interest rates make this especially difficult. Investors of public funds may be tempted to chase yield by extending maturities too far into the future or by purchasing exotic securities. However, these investment tactics add volatility to the government's portfolio and should be avoided.
Since history tends to repeat itself, investors would do well to remember the highly publicized investment losses of 1994. From California to Maine, public entities lost millions of dollars when the market value of their investments fell because of rising ...