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Just to clarify- I'm not at all suggesting that CD or Treasury ladders are the only way to do things. I have about half in a CD/Treasury ladder through Schwab, and about half in a couple of MMKT funds.
Like @dtconroe said, "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.)."
Same here- before retirement, made the stash. After retirement, protecting the stash.
Also, as @BenWP said above: "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."
Again, same here. My wife, joint owner, understands CDs and MMKT accounts, so we don't need anything fancy, and we really don't care about "beating" anything.
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.
If you buy a longer term brokered CD and rates fall, the value of the CD will rise and you can sell it for a profit. But you won't. You'll just keep it and collect that higher coupon until it matures at the exact price you paid.
Same with bond funds, except for the fact that they are comprised of various maturities, so there is never a fixed future date at which you know you will get your entire investment back.
I guess I'm really just talking about a psychological comfort. If you're wrong, and rates keep going up, it's a lot more pleasant to accept your now sub-par interest payments month after month than it is to take an actual loss on the amount you invested.
So my question is: why would you prefer to own bond funds to a longer term CD when rates are falling?
You changed what we are talking about. We were discussing shorter-term CD that matures in 3-6-12 months. I already posted that 3-5 years CD makes more sense because rates will fall in months to come, and the 3-5 years CDs will pay more months after that. Why would you sell these longer-term CDs? Usually, CD holders hold to the end + they pay a penalty if they sell early.
MM and Mutual funds give me a lot more flexibility. Investors who bought CD months ago are paid less than MM today. But again, the difference is peanuts in performance. When rates start going down, my longer term funds will make more money in weeks-months. Basically for me, when CD pays close to MM, I would never go with CD because CD has more constraints. If rates are stabilized my bond funds will definitely make more money. Sure, bond funds are riskier, but I can make a lot more too. When markets turn around, you can make several % in funds within weeks. I call it the big money.
But, if someone just wants to make 5%, then CDs are OK, but inflation is still high. I want to make 3% above inflation. It's all correlated. Inflation is lower, CD pays lower. CDs can't compensate you enough after inflation and why 3-5 years CDS may be a better choice if inflation goes to 3%.
Just purchased a 6 figure CD for my IRA, paying 5.2%, over an 18 month term--my first CD with a Maturity Date in 2025. I have 3 more CDs maturing in 2023, and 9 CDs maturing in 2024. When these remaining CDs mature, I will seriously consider buying replacement CDs, if they are paying 5+%. If CD rates start tanking before my remaining CDs mature, I will have to carefully evaluate my options at that point in time. "Making a lot more money in bonds than CDs" is not very important to me, as long as CDs pay a rate I consider attractive. Low risk and low stress are very important to me in retirement, but I do prefer at least a 4% to 6% TR, to replace RMD distributions, and I will look for the lowest risk investment options to meet that objective.
Try CRV and then Accord will feel like a sports car. Now we have CRV and RDX. We have been a Honda/Acura family for many years.
+1 on Acura. After a decade of German engineering, I just bought my second MDX last month, actually ... luxury Honda engineering with fantastic AWD capabilities. And massaging seats, too.
Using Schwab as my source of CD rate data it seems as though a plateau may have been reached. Since July 10 rates have been essentially flat. I don’t think that these rates will last well into 2024. Now may be the time to lock in for longer.
Using Schwab as my source of CD rate data it seems as though a plateau may have been reached. Since July 10 rates have been essentially flat. I don’t think that these rates will last well into 2024. Now may be the time to lock in for longer.
My "guess"--I am expecting shorter term CD rates to rise a little more as we move through the rest of August. I am not expecting any major changes for the remainder of 2023. I am expecting 2024 to be flat to slightly lower for both shorter and longer term periods. I still think there is a chance for one more small rate hike this year, but we are moving into election season, and I just don't see the Feds doing anything signficant during the election period
"My "guess"--I am expecting shorter term CD rates to rise a little more as we move through the rest of August. I am not expecting any major changes for the remainder of 2023. "
Not a CD note. While checking T-bills last night at Schwab I found no buys shorter than one year for auction today. So are all the short term T-bills getting bought up as soon as they open for purchase ? I believe short cd's were numerous.
Thank you @yogibearbull. I will quit looking at that pre-schedule in the late evening. Lazy eyes & mind. No wander I couldn't find 4 & 8 week T-bills !
I found this article interesting, based on the projections of a group of experts. My reading of the article is that shorter term CDs look appealing for the remainder of 2023, and then longer term CDs look more promising in 2024. The Feds have a stronger likelihood of holding rates steady, or slightly increasing rates, in 2023, but in 2024 the projections are for holding rates steady, or slight reductions.
I do not have any current CDs maturing again until December, so I have a little time to digest my investing thoughts, before I have to make some investing decisions.
The nice thing is that the Fed tries to be as transparent as possible. They actually broadcast and tell you what they are going to do. I think you'll have plenty of time and info to make a wise decision.
Short-term rates are peaking, but it would still be hard to call the absolute top. It is now? Or, 1-2 +25 bps hikes? But that should be it.
Long-term rates are now a puzzle. When people were expecting a recession, they were calling for long-rates to drop to 2-3%. But now, with recession off the table, and soft landing at best, and inflation not tamed yet, there are concerns that long-rate may shoot up to 6%+. The Fed has little control over the long-term rates and it is in the QT mode now (QE did bring down or held or suppressed long-rates).
Sticking with short/intermediate-term seems wise now.
1) Money Market Funds may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors.
2) Offers potentially higher yields than a money market portfolio limited to Treasury-or government-related issues and mitigates risk by investing in a broadly diversified portfolio of securities across a range of eligible money market investments that may include, but are not limited to, bank obligations such as time deposits and certificates of deposit; commercial paper; asset-backed securities; corporate and medium-term notes; adjustable-rate securities; repurchase agreements; and government-related debt.
Basically, this fund takes more risk by venturing into less "safe" holdings + may have gates/fees in stressful times. Since 2022, I switched our Schwab SNAXX with now 5.37% yield with possible gates(as the fund above) to SCOXX at 5.21% and no gates/fees. The extra yield isn't worth for me if I want to trade at any moment and I can't sell the fund.
You make a good point. I guess I treat these risks the same as I do the risks I take every time I get in a car -- real, yes-- but I don't really think about it, and the chances of me getting into a bad car wreck are much, MUCH higher the the chance of these negatives materializing. Nothing is ever 100% in this world of woe. I'm happy to have the extra few bucks. But I understand your preferences also.
The reason I have this account at Wells Fargo has to do with my parents having an account at a brokerage called Thompson-Mckinnon back in the 1960s. They kept getting acquired and passed along to new entities, so now here we are.
Hi dryflower, I do take higher risks but I want to make a lot more than an extra 0.2-0.3% annually. This is why I trade bond funds for weeks-months and back to MM.
Regardless, making 5+% for SOME of the money is great for most.
Just be aware of the differences between government m-mkt funds and higher yielding prime-retail m-mkt funds. May be use both, the former for critical needs and check writing, and the latter for less critical needs.
It has always struck me that many people (and I'm not saying you) are far more worried about the absolute safety of their money than they are about the absolute safety of their own lives. If they were half as worried about their own safety as they are about the safety of their money, they would never ride in a car.
It has always struck me that many people (and I'm not saying you) are far more worried about the absolute safety of their money than they are about the absolute safety of their own lives. If they were half as worried about their own safety as they are about the safety of their money, they would never ride in a car.
+1. Totally agree and envious you can get 5.59% in your money market fund. Along the point you are trying to make. It amazes me how worried many are about the safety of their money vs. the safety of their health. They don’t seem to worry about what they eat, their weight, their blood pressure, or their sugar and cholesterol/triglycerides levels. Yet their fret about every little minute detail of their finances as if they all expect to live to be 100.
For check writing, one should use only government m-mkt funds. Checks can remain outstanding and valid up to 6 months and some bounced checks can quickly run up NSF fees and related headaches.
Note that Fido and Vanguard use only government m-mkt funds as their core/settlement funds.
Prime-retail m-mkt funds that may impose gates/redemption-fees on short notices are OK for other purposes where temporary alternatives exist.
Money-market funds now are so heavily regulated that one may also consider using ultra-ST bond funds (ICSH, JPST, etc).
@Junkster- Right on. Because we have more than enough income from SS and pensions to live on, our main requirement for our financial assets is safety, not growth, particularly. The current financial environment is perfect for that, with Treasury/CD/MMKT rates high enough to reasonably offset inflation. That allows peace of mind and extra time and resources to take precautions about what we eat, our weight, blood pressure, and sugar and cholesterol/triglycerides levels.
Since we are fortunate enough to still be reasonable healthy in our 80s, it seems prudent to watch those factors in order to be able to remain healthy and enjoy life. Don't have to take all the fun out of eating- just keep sugar, salt, fat and other bad stuff down to a reasonable level.
Comments
Like @dtconroe said, "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.)."
Same here- before retirement, made the stash. After retirement, protecting the stash.
Also, as @BenWP said above: "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."
Again, same here. My wife, joint owner, understands CDs and MMKT accounts, so we don't need anything fancy, and we really don't care about "beating" anything.
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.
If you buy a longer term brokered CD and rates fall, the value of the CD will rise and you can sell it for a profit. But you won't. You'll just keep it and collect that higher coupon until it matures at the exact price you paid.
Same with bond funds, except for the fact that they are comprised of various maturities, so there is never a fixed future date at which you know you will get your entire investment back.
I guess I'm really just talking about a psychological comfort. If you're wrong, and rates keep going up, it's a lot more pleasant to accept your now sub-par interest payments month after month than it is to take an actual loss on the amount you invested.
You changed what we are talking about. We were discussing shorter-term CD that matures in 3-6-12 months. I already posted that 3-5 years CD makes more sense because rates will fall in months to come, and the 3-5 years CDs will pay more months after that. Why would you sell these longer-term CDs? Usually, CD holders hold to the end + they pay a penalty if they sell early.
MM and Mutual funds give me a lot more flexibility. Investors who bought CD months ago are paid less than MM today. But again, the difference is peanuts in performance.
When rates start going down, my longer term funds will make more money in weeks-months.
Basically for me, when CD pays close to MM, I would never go with CD because CD has more constraints.
If rates are stabilized my bond funds will definitely make more money. Sure, bond funds are riskier, but I can make a lot more too. When markets turn around, you can make several % in funds within weeks. I call it the big money.
Example: look at a chart of 10 years treasury (https://schrts.co/YZrChyJi)
Now look at ORNAX(https://schrts.co/RarenBFS). See how nicely ORNAX made on 11/2022, 01/2023, 03/2023.
But, if someone just wants to make 5%, then CDs are OK, but inflation is still high. I want to make 3% above inflation. It's all correlated. Inflation is lower, CD pays lower.
CDs can't compensate you enough after inflation and why 3-5 years CDS may be a better choice if inflation goes to 3%.
Clarification: But 5 figures, not 6.
@LarryB and @dtconroe- FWIW, that's what I'm guessing at also.
"I have no business contemplating such a bauble."
@BenWP- FWIW, that's what I think every time I see a good-looking woman.
Once a month 52-wk Auction is TODAY. I have an order in.
Save/bookmark Auction schedule, https://home.treasury.gov/system/files/221/Tentative-Auction-Schedule.pdf
WSJ: Banks’ Problems Aren’t Over, According to the Bond Market
https://www.allspringglobal.com/investments/mutual-funds/fund-profile/overview/?accountingId=WBC7&shareClass=Prm&ecid=a2b2c5d4e1&gclid=CjwKCAjww7KmBhAyEiwA5-PUSmoIKzpnpEo0qG8Sjvx3LonlVIMh1tkFzCrOPvePv2zmMfGYEdUeaBoCQlsQAvD_BwE
I found this article interesting, based on the projections of a group of experts. My reading of the article is that shorter term CDs look appealing for the remainder of 2023, and then longer term CDs look more promising in 2024. The Feds have a stronger likelihood of holding rates steady, or slightly increasing rates, in 2023, but in 2024 the projections are for holding rates steady, or slight reductions.
I do not have any current CDs maturing again until December, so I have a little time to digest my investing thoughts, before I have to make some investing decisions.
Long-term rates are now a puzzle. When people were expecting a recession, they were calling for long-rates to drop to 2-3%. But now, with recession off the table, and soft landing at best, and inflation not tamed yet, there are concerns that long-rate may shoot up to 6%+. The Fed has little control over the long-term rates and it is in the QT mode now (QE did bring down or held or suppressed long-rates).
Sticking with short/intermediate-term seems wise now.
Issues with the above fund, see quotes from 2 sites(the above site + https://www.wellsfargo.wallst.com/EBrokerageDesktop/Public/Mf/Profile?symbol=96641854)
1) Money Market Funds may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors.
2) Offers potentially higher yields than a money market portfolio limited to Treasury-or government-related issues and mitigates risk by investing in a broadly diversified portfolio of securities across a range of eligible money market investments that may include, but are not limited to, bank obligations such as time deposits and certificates of deposit; commercial paper; asset-backed securities; corporate and medium-term notes; adjustable-rate securities; repurchase agreements; and government-related debt.
Basically, this fund takes more risk by venturing into less "safe" holdings + may have gates/fees in stressful times. Since 2022, I switched our Schwab SNAXX with now 5.37% yield with possible gates(as the fund above) to SCOXX at 5.21% and no gates/fees. The extra yield isn't worth for me if I want to trade at any moment and I can't sell the fund.
I'm happy to have the extra few bucks.
But I understand your preferences also.
The reason I have this account at Wells Fargo has to do with my parents having an account at a brokerage called Thompson-Mckinnon back in the 1960s. They kept getting acquired and passed along to new entities, so now here we are.
Regardless, making 5+% for SOME of the money is great for most.
It has always struck me that many people (and I'm not saying you) are far more worried about the absolute safety of their money than they are about the absolute safety of their own lives. If they were half as worried about their own safety as they are about the safety of their money, they would never ride in a car.
Note that Fido and Vanguard use only government m-mkt funds as their core/settlement funds.
Prime-retail m-mkt funds that may impose gates/redemption-fees on short notices are OK for other purposes where temporary alternatives exist.
Money-market funds now are so heavily regulated that one may also consider using ultra-ST bond funds (ICSH, JPST, etc).
Since we are fortunate enough to still be reasonable healthy in our 80s, it seems prudent to watch those factors in order to be able to remain healthy and enjoy life. Don't have to take all the fun out of eating- just keep sugar, salt, fat and other bad stuff down to a reasonable level.