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I'm OK with "only" 5.2% using SCOXX(Treasury) which has a guarantee for no locks. I stopped using SNOXX in 2022, and I'm not coming back anytime soon. This allows me to trade anytime with ease and flexibility. Another 0.1-0.2% for 6 months isn't worth for me the hassle. While MM keeps going up, the CDs you bought 3-6 months ago were lower.
@FD1000 what are the differences between SCOXX (Schwab Treasury Obligations Money Fund) and SUTXX (Schwab U.S. Treasury Money Fund), besides the former yielding 5.20% and the latter 5.08%?
Personally, I’m optimistic about balanced funds going forward. Bond and cash yields are higher than they have been in years, so they could contribute a lot to performance, rather than mainly providing ballast. My largest holdings are balanced funds. Fortunately, Fidelity has a number of good ones.
Something that does not discussed when considering CDs, is the importance of coupon frequency. In my taxable account I prefer shorter term CDs, withh monthly coupons, to ensure I have greater liquidity options. I use a lot of 6 month, 9 month, and 1 year CDs, which pay monthly coupons/dividends, although I will have a maturity date coupon for smaller CD amounts. I buy CDs in the 5 and 6 figure range, and it is not uncommon for the principal amount to drop thousands of dollars before the CD matures, and I do not want to be faced with potential needs for that principal, with heavy redemption penalties, in my taxable account. I try to maintain 7 or 8 of these shorter term CDs, with their maturity dates being staggered, so I am having CDs maturing quite frequently for liquidation options.
In my IRA accounts, I am fine with longer term CDs, with more semi-annual, intermixed with a few monthly coupon CDs. I do not have as much liquidity concerns, but I do need these CDs maturing every few months, because of a need for annual RMDs.
A few days ago I had a 6 month, 5 figure CD mature in my taxable account, and I chose to put it into my MM account with some big ticket insurance, travel, and holiday expenses occurring--I needed the liquidity. I also had a six figure CD, mature in my IRA account, and I have decided to reinvest that coupon back into a CD of one to two years, probably on a semi-annual or monthly coupon frequency. I am not as concerned about liquidity in my IRA, have no plans to redeem them, and if I should unexpectedly die in the middle of the term, I have survivor benefits for these CDs.
Others may not care as much about coupon frequency, but liquidity and accessibility factors are important to me, along with ensuring I have sufficient number of CDs to stagger their maturity dates for frequency.
Looking at Fidelity CD for 3-6 months(https://fixedincome.fidelity.com/ftgw/fi/FILanding) shows the highest yield as 5.15-20% while SCOXX pays 5.2%. MM is the easiest way to invest your money with a monthly payout, easy to hold using one fund, easier to change if another MM pays more, and easy to trade anytime when you see a great trade. As I said before, if someone bought a 6-month CD 2-3 months ago, he/she is getting lower income now and in the next 3 -4 months than the MM which keeps going up with interest rates. The Fed chair keeps telling us that rates will stay higher longer. If you want to lock your money for 3-5 years at 5.4% it makes more sense for a part of your money. BUT...Interest rates are at a high point for years. They are going lower within months from now and it will be one of the best times to make money, especially with higher-rated bonds.
============
Mona: SCOXX vs SUTXX. They are both safe options and can be sold without gates. I have used both based on their yield. SCOXX=Typically invests in securities backed by the full faith and credit of the U.S. government and repurchase agreements backed by such investments SUTXX=Typically invests in securities backed by the full faith and credit of the U.S. government*. This fund is prohibited from investing in repurchase agreements.
What are repo agreements? Still look safe to me, read here (link).
A fund's % of Treasury obligations can be used for state/local tax exemption, especially in high tax states. But this doesn't apply to Treasury repos. So, the higher yield of SCOXX (12 bps) over SUTXX comes with this catch; similar for Investor shares (SNOXX vs SNSXX).
Here is something I learned when I bought a six figure CD last year from First Republic Bank, a seemingly well regarded institution.
As you may know, FRB went bankrupt in the spring but, luckily, it was quickly taken over by JP Morgan Chase. My account was simply transferred to Chase, and I got back my principal and the earned interest at the CD's maturity date. A seamless transition.
It may not have been so seamless if the FDIC had not found a buyer right away. I may have had to wait before I was made whole again, either by the FDIC or another institution.
Hence, in the future, I will only buy a FDIC insured CD from a large, "too big to fail", national bank, even if it means the loss of a few basis points.
@fred. Point well taken. Another defensive measure might be to skip six figure CD’s all together and spread the risk around. I am trying to have fewer CD’s in my collection but not so much to add concentration risk to a mostly safe asset class.
wow, only 50-100K in each CD? I would have to purchase many of them + deal with so many different institutions. The more details I read about the less I want to do it.
The FDIC coverage limit is 250k, so of course we stay inside that. Why trust any one bank when there are so many to use? Yes, I have to purchase many of them. No, there's only one institution to deal with: Schwab.
We've all been informed numerous times that you're a brilliant multizillionaire, and we're really not terribly impressed. Perhaps some of us are, also. Maybe you should change your user name to BS1000.
@dtconroe: I am intrigued by your explanation of how you use of CDs and their multiple maturity dates. I spend what some would probably call an excessive amount of my free time juggling MFs and ETFs. However, I did put $10K into a CD for the very first time a few months back. Most of my cash is in MM funds, namely SWVXX. Do you not spend any time on the equity side of your portfolio in favor of monitoring what appears to my inexperienced eye a complex operation devoted to CDs, ladders, and redemptions? For my part, I am content with the pretty generous yield on my MM stash, which allows me to buy and sell assets quickly and effortlessly, without worrying if I'm getting the last 1/10% out of the dough. FWIIW, I recall hearing it said about a stock trader in old days when stocks were priced in fractions that, "He'd sell his grandmother for an eighth." I guess I can accept my mileage varying a bit lest I become become too obsessive.
@BenWP- it's really not all that complicated, at least the way that I do it-
• Take a guess at how long I might be still around. Say, hopefully, at least a couple of years. • (Alternatively, determine a date when I might be needing cash for something.) • Decide how much overall that I want to invest in CDs or Treasuries. • OK, now I've got a reasonable horizon to think about.
• Take a look at Schwab or other brokerage, plug in the desired specs: duration, non-callable, desired interest. (There's a page for setting up the specs. I use Schwab here as an example, but I'm sure that other brokerages have a similar setup.) • All of the banks listed will be FDIC insured.
• Generally speaking, in a market like this one, the longer out you look the less the interest rate will be. • OK, now just buy CDs: • each one for whatever amount is comfortable for a single bank. (You're FDIC insured, but spread out the chance of problems.) • each one for a particular maturity- say maybe 3 mths, 6mths, 9, 12, 15, 18, 21, 24. etc. That's your "ladder".
• Now you've got an income stream with payments coming in predictably. • Additionally, there'll also be interest coming in at various times, depending on the CD terms. • OK, at 3 mths the first one matures. Then you decide whether to buy a new one or use the cash for something else. The interest rates available at that time may have increased or decreased. • Etc. for the remaining maturities. The procedure is similar for short-term Treasuries.
• That's about it. If I can figure it out, I guarantee that can't be very hard!
He needs to start his own new school of investing. Uncooperative pupils here.
OJ borrowed an old trick of mine. Add a humorous note at the bottom of a long confusing complex post just to see if anyone read all the way through it.
Thanks, @Old_Joe. I did read to the end and was rewarded. BTW, I crossed the four-score line in 2022, but I know you to be far more mature than I (lol).
Somewhat related: I do worry about leaving a complicated portfolio for my wife, say, who has no interest in investing. I assume that your ladders could be passed to a joint owner of the account with no problem. I could, OTOH, imagine a scenario in which an executor of the estate might have to liquidate everything in order to establish net worth on the date of death. I don’t want to replicate what happened after the death of a close relative whose investments were so diverse and so long-term that they pre-dated the advent of electronic brokerage record-keeping. I think it took three years to finally settle with the IRS and the state taxing authority, Nobody won that one.
Simplification is a valuable, important consideration. My wife is somewhat and sometimes interested in the investing stuff, but mostly about passwords, to sign-in. The tactical and strategic stuff, not so much. So, we have ALMOST all of our eggs in one basket: My TRAD IRA with TRP. Brokerage joint account at TRP--- despite some of its limitations. Her own TRAD IRA is at Bruce. And within TRP, there are currently 5 funds and 5 single-stocks. Manageable. Easy to consolidate, when the time comes. She's 9 and a half years from being able to "raid" her IRA without penalty.
To me, the point isn’t that CD yields can be marginally higher than money markets. It’s that interest rates will start dropping at some point, and then MM yields will drop quickly. With CDs, you can lock in high yields for as long as 10 years, and you will continue getting those yields even if interest rates drop (assuming you bought non-callable CDs).
To me, the point isn’t that CD yields can be marginally higher than money markets. It’s that interest rates will start dropping at some point, and then MM yields will drop quickly. With CDs, you can lock in high yields for as long as 10 years, and you will continue getting those yields even if interest rates drop (assuming you bought non-callable CDs).
+1 And with that in mind, bond funds will make a lot more money than CDs. That's the beauty of owning MM on the way up, and owning bond funds when rates go down. After rates stabilize, CDs still will not be great. The idea is to make a lot more money (several %) on the big moves and disregard very small gains (0.2-0.4%) for several months with a lot more effort and gates.
So, how do you figure out the above? use the following ideas 1) Listen to the Fed chair, not the experts 2) Pay attention to CME FedWatch Tool(https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html). It tells in real time where rates will be in the next several months, it's OK to be late, never be too early.
The m-mkt fund yields have lagged as the rates moved up.
They have almost caught up, especially, the low ER VMFXX (core/settlement) and VMRXX, as the rate growth has slowed. Other m-mkt funds have lower yields due to their higher ERs. Schwab pushes its higher yielding prime-retail (subject to gates/redemption-fee) SWVXX / SNAXX, and I am surprised that it is often listed along with the government m-mkt funds (Schwab version SNVXX / SGUXX) - power of advertising/sponsorship.
This will reverse when the rates start to go down, i.e. m-mkt yields will temporarily remain high as the rates fall. In fact, in a few months, people may talk about the m-mkt outperforming T-Bills and CDs, but that won't last - maybe a few weeks.
So, things won't change instantaneously with m-mkt funds.
@dtconroe: I am intrigued by your explanation of how you use of CDs and their multiple maturity dates. I spend what some would probably call an excessive amount of my free time juggling MFs and ETFs. However, I did put $10K into a CD for the very first time a few months back. Most of my cash is in MM funds, namely SWVXX. Do you not spend any time on the equity side of your portfolio in favor of monitoring what appears to my inexperienced eye a complex operation devoted to CDs, ladders, and redemptions? For my part, I am content with the pretty generous yield on my MM stash, which allows me to buy and sell assets quickly and effortlessly, without worrying if I'm getting the last 1/10% out of the dough. FWIIW, I recall hearing it said about a stock trader in old days when stocks were priced in fractions that, "He'd sell his grandmother for an eighth." I guess I can accept my mileage varying a bit lest I become become too obsessive.
BenWP, I am 75 years old, devoted to preserving my accumulations with moderate TR, so my investments are relatively low risk now. Before retirement, I was very aggressive with a ton of Equity oriented holdings (Sector holdings, Value and Growth Equity Funds, some balanced funds, Global and International Equity holdings, etc.). After I retired, my investment emphasis changed dramatically to lower risk funds, focusing on Bond Oefs with low SD and solid momentum--my favorites were multisector and nontraditonal and HY bond oefs. In March of 2022, I sold everything, was totally in MMs, and started investing in CDs as my chosen option for risk management to produce guaranteed income. CDs require a special set of investing skills, and I chose to spread my cash around to multitude of CDs, in a short term laddering system. 90% of my CDs are in six figure CDs, but I do have a small number of 5 figure CDs. All of my CDs stay within the FDIC insured amounts, but my CD selections are more short term (2 years or less) with banks with high quality ratings. At 75, I don't have that many years left, have plenty of money to live comfortably, and have no interest in taking "unnecessary" risks, and am more focused on a retirement life, with minimal stress, and as much joy as I can muster.
I wish you well, but I suspect you are in a different life situation, with a different set of investing objectives!
@dtconroe: thanks for your very clearly expounded review of your situation and how your current portfolio evolved from something quite different from what you are holding/managing today. I had forgotten what you reported doing to your portfolio last year. I think you did exceedingly well to preserve your capital; wouldst that I had done the same instead of screwing around with the likes of REMIX. You could have a second career as a market timer!!
You are absolutely right to point out that individual circumstances vary so much that what one member may be doing can have little relevance to what another does. I can leave my TIAA portfolio for passive accumulation, the result of generous employer and my belated contributions over a 42-year career. Our Roths and joint brokerage accounts, OTOH, I can afford to manage as actively as I choose to, even at the age of 81. Our Honda Accord hybrid gets better mileage than what I get out of my hands-on approach to investing, if you don't mind a mixed metaphor. The Accord rarely offers thrilling acceleration while my occasional pedal-to-the-metal aggressive buys might produce squat. The Accord, however always provides a smooth ride.
BenWP: "You could have a second career as a market timer!!"
Unfortunately, I do not consider myself a good market timer. I got a bit lucky in 2022, but I could tell many stories about poor timing decisions in the past. I have very much enjoyed this recent period of CD investing, and look forward to improving my CD investing skills, from other posters on this Forum.
Comments
12 MONTH CD
5.36% APY
24 MONTH CD
4.75% APY
We may charge a 30 day penalty if you withdraw your CD funds before maturity.
We’re backed by CIBC, a 150-year-old Toronto-based global financial institution. Our U.S. headquarters is in Chicago, Illinois.
https://us.cibc.com/en/agility/certificates-of-deposit.html
FWIW, at Fido, I also like multisector FMSDX.
Vanguard just killed its version of multisector - that was VPGDX for a short while, but VG decided to fold it into unexciting VSMGX.
In my IRA accounts, I am fine with longer term CDs, with more semi-annual, intermixed with a few monthly coupon CDs. I do not have as much liquidity concerns, but I do need these CDs maturing every few months, because of a need for annual RMDs.
A few days ago I had a 6 month, 5 figure CD mature in my taxable account, and I chose to put it into my MM account with some big ticket insurance, travel, and holiday expenses occurring--I needed the liquidity. I also had a six figure CD, mature in my IRA account, and I have decided to reinvest that coupon back into a CD of one to two years, probably on a semi-annual or monthly coupon frequency. I am not as concerned about liquidity in my IRA, have no plans to redeem them, and if I should unexpectedly die in the middle of the term, I have survivor benefits for these CDs.
Others may not care as much about coupon frequency, but liquidity and accessibility factors are important to me, along with ensuring I have sufficient number of CDs to stagger their maturity dates for frequency.
As I said before, if someone bought a 6-month CD 2-3 months ago, he/she is getting lower income now and in the next 3 -4 months than the MM which keeps going up with interest rates. The Fed chair keeps telling us that rates will stay higher longer.
If you want to lock your money for 3-5 years at 5.4% it makes more sense for a part of your money.
BUT...Interest rates are at a high point for years. They are going lower within months from now and it will be one of the best times to make money, especially with higher-rated bonds.
============
Mona: SCOXX vs SUTXX. They are both safe options and can be sold without gates. I have used both based on their yield.
SCOXX=Typically invests in securities backed by the full faith and credit of the U.S. government and repurchase agreements backed by such investments
SUTXX=Typically invests in securities backed by the full faith and credit of the U.S. government*. This fund is prohibited from investing in repurchase agreements.
What are repo agreements? Still look safe to me, read here (link).
As you may know, FRB went bankrupt in the spring but, luckily, it was quickly taken over by JP Morgan Chase. My account was simply transferred to Chase, and I got back my principal and the earned interest at the CD's maturity date. A seamless transition.
It may not have been so seamless if the FDIC had not found a buyer right away. I may have had to wait before I was made whole again, either by the FDIC or another institution.
Hence, in the future, I will only buy a FDIC insured CD from a large, "too big to fail", national bank, even if it means the loss of a few basis points.
Fred
Disclaimer: I never owned CDs or treasuries.
We've all been informed numerous times that you're a brilliant multizillionaire, and we're really not terribly impressed. Perhaps some of us are, also. Maybe you should change your user name to BS1000.
d• Take a guess at how long I might be still around. Say, hopefully, at least a couple of years.
• (Alternatively, determine a date when I might be needing cash for something.)
• Decide how much overall that I want to invest in CDs or Treasuries.
• OK, now I've got a reasonable horizon to think about.
• Take a look at Schwab or other brokerage, plug in the desired specs: duration, non-callable, desired interest.
(There's a page for setting up the specs. I use Schwab here as an example, but I'm sure that other
brokerages have a similar setup.)
• All of the banks listed will be FDIC insured.
• Generally speaking, in a market like this one, the longer out you look the less the interest rate will be.
• OK, now just buy CDs:
• each one for whatever amount is comfortable for a single bank. (You're FDIC insured, but spread out
the chance of problems.)
• each one for a particular maturity-
say maybe 3 mths, 6mths, 9, 12, 15, 18, 21, 24. etc. That's your "ladder".
• Now you've got an income stream with payments coming in predictably.
• Additionally, there'll also be interest coming in at various times, depending on the CD terms.
• OK, at 3 mths the first one matures. Then you decide whether to buy a new one or use the cash for
something else. The interest rates available at that time may have increased or decreased.
• Etc. for the remaining maturities. The procedure is similar for short-term Treasuries.
• That's about it. If I can figure it out, I guarantee that can't be very hard!
(If you're FD, none of this is worth your time.)
OJ borrowed an old trick of mine. Add a humorous note at the bottom of a long
confusingcomplex post just to see if anyone read all the way through it.Somewhat related: I do worry about leaving a complicated portfolio for my wife, say, who has no interest in investing. I assume that your ladders could be passed to a joint owner of the account with no problem. I could, OTOH, imagine a scenario in which an executor of the estate might have to liquidate everything in order to establish net worth on the date of death. I don’t want to replicate what happened after the death of a close relative whose investments were so diverse and so long-term that they pre-dated the advent of electronic brokerage record-keeping. I think it took three years to finally settle with the IRS and the state taxing authority, Nobody won that one.
And with that in mind, bond funds will make a lot more money than CDs.
That's the beauty of owning MM on the way up, and owning bond funds when rates go down. After rates stabilize, CDs still will not be great. The idea is to make a lot more money (several %) on the big moves and disregard very small gains (0.2-0.4%) for several months with a lot more effort and gates.
So, how do you figure out the above? use the following ideas
1) Listen to the Fed chair, not the experts
2) Pay attention to CME FedWatch Tool(https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html). It tells in real time where rates will be in the next several months, it's OK to be late, never be too early.
They have almost caught up, especially, the low ER VMFXX (core/settlement) and VMRXX, as the rate growth has slowed. Other m-mkt funds have lower yields due to their higher ERs. Schwab pushes its higher yielding prime-retail (subject to gates/redemption-fee) SWVXX / SNAXX, and I am surprised that it is often listed along with the government m-mkt funds (Schwab version SNVXX / SGUXX) - power of advertising/sponsorship.
This will reverse when the rates start to go down, i.e. m-mkt yields will temporarily remain high as the rates fall. In fact, in a few months, people may talk about the m-mkt outperforming T-Bills and CDs, but that won't last - maybe a few weeks.
So, things won't change instantaneously with m-mkt funds.
I wish you well, but I suspect you are in a different life situation, with a different set of investing objectives!
You are absolutely right to point out that individual circumstances vary so much that what one member may be doing can have little relevance to what another does. I can leave my TIAA portfolio for passive accumulation, the result of generous employer and my belated contributions over a 42-year career. Our Roths and joint brokerage accounts, OTOH, I can afford to manage as actively as I choose to, even at the age of 81. Our Honda Accord hybrid gets better mileage than what I get out of my hands-on approach to investing, if you don't mind a mixed metaphor. The Accord rarely offers thrilling acceleration while my occasional pedal-to-the-metal aggressive buys might produce squat. The Accord, however always provides a smooth ride.
Unfortunately, I do not consider myself a good market timer. I got a bit lucky in 2022, but I could tell many stories about poor timing decisions in the past. I have very much enjoyed this recent period of CD investing, and look forward to improving my CD investing skills, from other posters on this Forum.