 |
Bogleheads
Investing Advice Inspired by Jack Bogle
|
| View previous topic :: View next topic |
| Author |
Message |
nisiprius
Joined: 26 Jul 2007
Posts: 9697
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
|
 Posted: Thu Aug 30, 2007 9:01 am Post subject: Microladders? Good for anything? |
 |
|
Not an issue right now with the yield curve being so flat, but... it occurred to me that with the ease of opening accounts online it would be completely practical to build a CD ladder with a CD maturing every month. For example, ING Direct has an all-on-one-page "CD ladder" option which lets you type in amounts for 6, 9, 12, 15, 18, 24, 30, 36, and 48 months. You could open one of these 9-CD ladders in Jan, Feb, Mar, Apr, May, Jun, then open 36 and 48-month CDs in each of Jul, Aug, Sep, Oct, Nov, Dec. And renew each for 48 months as it matures.
I don't know if it would even be such a great idea, and I'm not even sure I've figured out what it would be good for, but I just realized that it would be possible.
Has anyone ever actually done anything like this? Thoughts? |
|
| Back to top |
|
 |
stratton
Joined: 04 Mar 2007
Posts: 8153
Location: Puget Sound
|
| Posted: Thu Aug 30, 2007 9:40 am Post subject: |
|
|
| Quote: | | Has anyone ever actually done anything like this? Thoughts? |
Too high maintenance. I'd rather roll something over quarterly or every six months. You could also vary the reinvestment time a few weeks if there are market fluctuations such as people do with TIPS.
Paul |
|
| Back to top |
|
|
ddb
Joined: 26 Feb 2007
Posts: 4411
Location: Manhattan
|
| Posted: Thu Aug 30, 2007 9:45 am Post subject: |
|
|
Why limit yourself to monthly ladder rungs? You could go weekly, or even daily if you wanted to.
I'd be surprised is such a strategy would "yield" any useful benefits over simply quarterly or semi-annual laddering. As Paul points out, the maintenance of monthly re-investing would get to be a real annoyance.
- DDB |
|
| Back to top |
|
|
stratton
Joined: 04 Mar 2007
Posts: 8153
Location: Puget Sound
|
| Posted: Thu Aug 30, 2007 9:59 am Post subject: |
|
|
| Quote: | | I'd be surprised is such a strategy would "yield" any useful benefits over simply quarterly or semi-annual laddering. As Paul points out, the maintenance of monthly re-investing would get to be a real annoyance. |
Changing hats, Indexfundfan is trying Cash management using municipal resets instead of MMF. So he's doing the weekly thing for a 10 or 20 basis point gain running his own institutional MMF equivalent. Of course, his risk is pretty concentrated because of the $25K individual bonds. Natural AAA only etc. ought to mitigate some of that.
Personally, I think this is a pain in the ass and I'd rather give up the few extra basis points for the diversification and not having to baby sit the "fund." Heck, I'd rather buy a fund instead of trying to handle individual 30 day treasuries.
On a million dollars 10 or 15 basis points is only $1,000 to $1,500. That's not a lot of money if you have to spend an hour a week at it. If its two hours a week thats $10 to $15 an hour. I make more than that at work and works a lot more interesting than clerical work.
Paul |
|
| Back to top |
|
|
grberry
Joined: 20 Jul 2007
Posts: 170
Location: Boston, MA
|
| Posted: Thu Aug 30, 2007 10:51 am Post subject: Why? |
|
|
What would be the benefit of the micro ladder? I can see two possibilities.
The first is having a CD maturing more regularly should the money be needed - this can be handled instead by having a short term ladder of three three month CDs and then a longer term ladder, for a great deal of administrative simplicity and not much downside.
The second is having more diversification across time of interest rates received. Would this be worth it? I don't know, can you show a study of monthly variation in available CD rates for five year CDs compared to quarterly or annual variation? I'd be very surprised if there was significantly more monthly variation than there is quarterly variation.
I can't see either benefit being worth the hassle. |
|
| Back to top |
|
|
hackenzoom
Joined: 24 Aug 2007
Posts: 26
Location: Oregon
|
| Posted: Thu Aug 30, 2007 12:32 pm Post subject: Re: Microladders? Good for anything? |
|
|
| nisiprius wrote: | I don't know if it would even be such a great idea, and I'm not even sure I've figured out what it would be good for, but I just realized that it would be possible.
Has anyone ever actually done anything like this? Thoughts? |
I had started down this path once, but halfway into it I realized that I have no guarantee that my need to extract emergency cash will evenly distribute itself over the course of a year. I might need a lump sum of 4k right now. I am (as they mature) converting my half constructed monthly distributed CD ladder into a MMF for the liquidity.
As for the argument for complexity, the entire ladder can be planned and budgeted in two hours. The time investment wasn't bad at all, and maintenance time is minimal if your institution allows you to specify a rolling reinvestment period. |
|
| Back to top |
|
|
|
|
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum
|
Powered by phpBB © 2001, 2005 phpBB Group
|
Wiki
FAQ
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
