Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
This investor does not want to wrestle with the extremely user-unfriendly TreasuryDirect website. (Shades of Fidelity's website.) I'll stick with my bond funds for the long haul. Who knows? Maybe someday the monthly dividends WILL actually be needed? Everything is being reinvested, still. Share prices are down with my junk funds, but this year, as soon as equities start to get moving, they get shot down by something or other, too. Either politics or some speech from a Fed official, or a rainy day or the moon turns to blood....... When rates come down, Markets will embrace it. I'm continuing to dollar-cost-average into my equities.
@Crash, you can buy Treasuries at brokerages commission-free. Savings Bonds/ I-Bonds can be bought only at Treasury Direct (TD).
Those who buy Treasuries at TD must move them to brokerages first if they want to sell before maturity. That is why, it is a good idea to buy Treasuries at brokerages in the first place.
Orders for Treasury Auctions can be entered in the afternoon of the Announcement day but the money is needed in non-margin accounts on/soon-after the Auction day.
Secondary market orders for Treasuries can be entered during market hours, also commission-free, but there is a small bid-ask, as with any other security.
@stillers As far as I’m concerned, this is a great investing time for retirees. I’m perfectly satisfied with guaranteed 5% returns, particularly with bond funds losing value every day
Agreed. If I wasn't still working and already in a fairly high marginal tax bracket I'd be snapping up 5%+ treasuries for the long-term. But right now, I'd be giving up a pretty significant chunk of that in taxes, so I'm sticking with QDI from equities at much more reasonable 15% taxation rates.
Guys - You’ve almost convinced me to sell everything and move it all into that “guaranteed insured rate of 5+% for the next … 5 years.”
Never invested that way before, having grown up believing a broadly diversified portfolio is the way to go. Even when money market funds paid 15% in the 80s I (perhaps stupidly) remained mostly in globally diversified equities. (Maybe “brainwashed” watching Rukeyser every Friday night.)
My question - If the rate available on this product (5-year CD) rises to 7-8% in a year or two, could I cash out that 5-year CD early and buy a new one at the 7-8% rate - or move it into a money market fund at a better rate than the old CD?
The five year CD might have a penalty of a year (it would almost certainly have at least a six month penalty) for early withdrawal. That could still make this a good move.
But if you bought the CD from a brokerage it would be little different from having bought a 5 year Treasury. You would sell at market rates, which would already have taken current interest rates into account. In short, you could swap horses, but you wouldn't get ahead that way.
And as the second law of thermodynamics is often paraphrased, you won't break even. There's friction (or entropy) involved - that transaction is going to cost you something; in the case of a brokered CD a big spread.
”But if you bought the CD from a brokerage it would be little different from having bought a 5 year Treasury.”
Ginsberg's theorem 1. You can't win. (consequence of first law of thermodynamics) 2. You can't break even. (consequence of second law of thermodynamics) 3. You can't even get out of the game. (consequence of third law of thermodynamics)
Sounds a lot like marriage. Easier to get in than out of. When you throw in the uncertainty of knowing where interest rates (or asset prices) might be a year or so from now, it makes the hypothetical proposition I posted earlier of “going all in” more complex than first appears. Like marriage, once you commit to that plan (sell your diversified holdings) it might be hard to get back into them at the same prices you sold for (the entropy part.)
One needs to assess the situation carefully: 1. Returns after the annual inflation. This year is about 3-4%.
2. Returns after federal and state tax. These instruments are tax as ordinary income on federal level. T bills are state tax exempt.
If inflation stays higher than the historical 2% for several years, that will erode purchasing power from the 5% yield. The 4% withdrawal rate May becomes not feasible. This is tough time for income investors including myself.
@hank — The way I am addressing the potential for more rate increases is to ladder my CDs and Treasuries. I’ve got CDs and Treasuries maturing roughly every three months on the short end, and every 6-12 months on the long end. My longest term CD is five years, but I’m considering going out longer if Treasury yields top 5% in the 5, 7, 10 and 20 year ranges. I am more willing to buy longer term Treasuries than CDs because of greater ease in selling.
When I started building ladders earlier this year, I bought some callable CDs at higher yields, not realizing the distinction. All of my more recent CDs are non-callable. However, only one of my earlier CDs has been called in, and I was able to reinvest at a higher rate.
I’ve also sold some of my intermediate bond funds and reinvested in an ultrashort fund (FCNVX) and floating rate ETF (USFR). I haven’t sold all of my intermediate and multisector bond funds because they are now paying much higher yields and will eventually rebound when interest rates stabilize or drop.
@Crash, you can buy Treasuries at brokerages commission-free. Savings Bonds/ I-Bonds can be bought only at Treasury Direct (TD).
Those who buy Treasuries at TD must move them to brokerages first if they want to sell before maturity. That is why, it is a good idea to buy Treasuries at brokerages in the first place.
Orders for Treasury Auctions can be entered in the afternoon of the Announcement day but the money is needed in non-margin accounts on/soon-after the Auction day.
Secondary market orders for Treasuries can be entered during market hours, also commission-free, but there is a small bid-ask, as with any other security.
Comments
Those who buy Treasuries at TD must move them to brokerages first if they want to sell before maturity. That is why, it is a good idea to buy Treasuries at brokerages in the first place.
Orders for Treasury Auctions can be entered in the afternoon of the Announcement day but the money is needed in non-margin accounts on/soon-after the Auction day.
Secondary market orders for Treasuries can be entered during market hours, also commission-free, but there is a small bid-ask, as with any other security.
Never invested that way before, having grown up believing a broadly diversified portfolio is the way to go. Even when money market funds paid 15% in the 80s I (perhaps stupidly) remained mostly in globally diversified equities. (Maybe “brainwashed” watching Rukeyser every Friday night.)
My question - If the rate available on this product (5-year CD) rises to 7-8% in a year or two, could I cash out that 5-year CD early and buy a new one at the 7-8% rate - or move it into a money market fund at a better rate than the old CD?
But if you bought the CD from a brokerage it would be little different from having bought a 5 year Treasury. You would sell at market rates, which would already have taken current interest rates into account. In short, you could swap horses, but you wouldn't get ahead that way.
And as the second law of thermodynamics is often paraphrased, you won't break even. There's friction (or entropy) involved - that transaction is going to cost you something; in the case of a brokered CD a big spread.
Ginsberg's theorem
1. You can't win. (consequence of first law of thermodynamics)
2. You can't break even. (consequence of second law of thermodynamics)
3. You can't even get out of the game. (consequence of third law of thermodynamics)
Sounds a lot like marriage. Easier to get in than out of. When you throw in the uncertainty of knowing where interest rates (or asset prices) might be a year or so from now, it makes the hypothetical proposition I posted earlier of “going all in” more complex than first appears. Like marriage, once you commit to that plan (sell your diversified holdings) it might be hard to get back into them at the same prices you sold for (the entropy part.)
1. Returns after the annual inflation. This year is about 3-4%.
2. Returns after federal and state tax. These instruments are tax as ordinary income on federal level. T bills are state tax exempt.
If inflation stays higher than the historical 2% for several years, that will erode purchasing power from the 5% yield. The 4% withdrawal rate May becomes not feasible. This is tough time for income investors including myself.
When I started building ladders earlier this year, I bought some callable CDs at higher yields, not realizing the distinction. All of my more recent CDs are non-callable. However, only one of my earlier CDs has been called in, and I was able to reinvest at a higher rate.
I’ve also sold some of my intermediate bond funds and reinvested in an ultrashort fund (FCNVX) and floating rate ETF (USFR). I haven’t sold all of my intermediate and multisector bond funds because they are now paying much higher yields and will eventually rebound when interest rates stabilize or drop.