CD options

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new000
Posts: 11
Joined: Wed May 03, 2017 12:50 pm

CD options

Postby new000 » Fri May 19, 2017 8:14 am

I am new to this community and wanted to know CD options . Should CD ladder worth considering or go with traditional one based on current market condition?
is there any better option over CD to park emergency funds ( unlikely to be used in next 4-5 years)

Thanks

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whodidntante
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Re: CD options

Postby whodidntante » Fri May 19, 2017 12:42 pm

I can tell you what I did. I stopped thinking in terms of buckets. I have equity index etfs in taxable and bonds and a stable value fund in my 401k. If I need to raise cash for current spending I trade to get the cash and to restore my desired asset allocation. The reasons I do it that way are greater tax efficiency and higher returns.

new000
Posts: 11
Joined: Wed May 03, 2017 12:50 pm

Re: CD options

Postby new000 » Fri May 19, 2017 1:17 pm

whodidntante wrote:I can tell you what I did. I stopped thinking in terms of buckets. I have equity index etfs in taxable and bonds and a stable value fund in my 401k. If I need to raise cash for current spending I trade to get the cash and to restore my desired asset allocation. The reasons I do it that way are greater tax efficiency and higher returns.


Thanks for your input. Currently, for taxable , i have FSTVX ,FTIPX and FSITX . Any better suggestions on fidelity tickers?

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DaftInvestor
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Joined: Wed Feb 19, 2014 10:11 am

Re: CD options

Postby DaftInvestor » Fri May 19, 2017 1:33 pm

Did you read this:
https://www.bogleheads.org/wiki/Emergency_fund

Some of us use iBonds (can't cash out first year - but thereafter they can be a second-tier emergency fund and if NOT used they are tax-deferred inflation protected retirement fund (many don't like the current rates but at least they are guaranteed to keep up with inflation pre-tax).

new000
Posts: 11
Joined: Wed May 03, 2017 12:50 pm

Re: CD options

Postby new000 » Fri May 19, 2017 1:52 pm

DaftInvestor wrote:Did you read this:
https://www.bogleheads.org/wiki/Emergency_fund

Some of us use iBonds (can't cash out first year - but thereafter they can be a second-tier emergency fund and if NOT used they are tax-deferred inflation protected retirement fund (many don't like the current rates but at least they are guaranteed to keep up with inflation pre-tax).


I didnt read it earlier but did read now. thank you, tiered approach seems the way to go.
Any tips to pick iBond offered by Fidelity?

aristotelian
Posts: 1616
Joined: Wed Jan 11, 2017 8:05 pm

Re: CD options

Postby aristotelian » Fri May 19, 2017 1:54 pm

new000 wrote:
DaftInvestor wrote:Did you read this:
https://www.bogleheads.org/wiki/Emergency_fund

Some of us use iBonds (can't cash out first year - but thereafter they can be a second-tier emergency fund and if NOT used they are tax-deferred inflation protected retirement fund (many don't like the current rates but at least they are guaranteed to keep up with inflation pre-tax).


I didnt read it earlier but did read now. thank you, tiered approach seems the way to go.
Any tips to pick iBond offered by Fidelity?


I-Bonds are only offered from Treasury Direct. There are some lengthy threads on whether to buy now vs November after next fixed rate is announced but at the end of the day it does not make a big difference.

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DaftInvestor
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Re: CD options

Postby DaftInvestor » Fri May 19, 2017 1:55 pm

new000 wrote:
DaftInvestor wrote:Did you read this:
https://www.bogleheads.org/wiki/Emergency_fund

Some of us use iBonds (can't cash out first year - but thereafter they can be a second-tier emergency fund and if NOT used they are tax-deferred inflation protected retirement fund (many don't like the current rates but at least they are guaranteed to keep up with inflation pre-tax).


I didnt read it earlier but did read now. thank you, tiered approach seems the way to go.
Any tips to pick iBond offered by Fidelity?


iBonds are purchased directly from the US Treasury here:
https://www.treasurydirect.gov/

new000
Posts: 11
Joined: Wed May 03, 2017 12:50 pm

Re: CD options

Postby new000 » Fri May 19, 2017 2:10 pm

Thanks for the link. I saw Ishare IBond options in fidelity and thought its the same . pardon my ignorance.

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Leif
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Re: CD options

Postby Leif » Fri May 19, 2017 2:21 pm

whodidntante wrote:I can tell you what I did. I stopped thinking in terms of buckets. I have equity index etfs in taxable and bonds and a stable value fund in my 401k. If I need to raise cash for current spending I trade to get the cash and to restore my desired asset allocation. The reasons I do it that way are greater tax efficiency and higher returns.

If your equity index efts are down say 50% will you still sell to raise cash? That would presumably take your further from your desired asset allocation.

I do have about 2 years of expenses in cash and a CD ladder. But, I'm getting close to retirement, so I believe that makes sense for me.

Emergency funds are just that, for emergencies. You want those funds liquid. Some in the past have suggested government E or I bonds. Others have suggested a Roth. Cash, in the form of a high yield account, is what I would use.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

radiowave
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Re: CD options

Postby radiowave » Fri May 19, 2017 2:46 pm

FSITX Fidelity's flavor of total bond is moderately tax inefficient in a taxable account.

See: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

The general consensus here is to put total bond funds in tax-deferred or tax-advantaged accounts.

aristotelian
Posts: 1616
Joined: Wed Jan 11, 2017 8:05 pm

Re: CD options

Postby aristotelian » Fri May 19, 2017 2:55 pm

new000 wrote:Thanks for the link. I saw Ishare IBond options in fidelity and thought its the same . pardon my ignorance.


No worries, there is no reason you should be expected to know. For more on I-Bonds and how they work, see the Wiki.

https://www.bogleheads.org/wiki/I_savings_bonds

mega317
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Re: CD options

Postby mega317 » Fri May 19, 2017 3:06 pm

Leif wrote:If your equity index efts are down say 50% will you still sell to raise cash? That would presumably take your further from your desired asset allocation.



Not to speak for someone else but I assume he would sell bonds and buy stocks in his 401k to get to desired asset allocation. I do this too.

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whodidntante
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Joined: Thu Jan 21, 2016 11:11 pm

Re: CD options

Postby whodidntante » Fri May 19, 2017 4:20 pm

Leif wrote:
whodidntante wrote:I can tell you what I did. I stopped thinking in terms of buckets. I have equity index etfs in taxable and bonds and a stable value fund in my 401k. If I need to raise cash for current spending I trade to get the cash and to restore my desired asset allocation. The reasons I do it that way are greater tax efficiency and higher returns.

If your equity index efts are down say 50% will you still sell to raise cash? That would presumably take your further from your desired asset allocation.

I do have about 2 years of expenses in cash and a CD ladder. But, I'm getting close to retirement, so I believe that makes sense for me.

Emergency funds are just that, for emergencies. You want those funds liquid. Some in the past have suggested government E or I bonds. Others have suggested a Roth. Cash, in the form of a high yield account, is what I would use.


Yes, I will sell if stocks are down 50%. It makes no difference because money is fungible. I will buy the corresponding amount of equities in my 401k to restore my asset allocation.

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whodidntante
Posts: 1567
Joined: Thu Jan 21, 2016 11:11 pm

Re: CD options

Postby whodidntante » Fri May 19, 2017 4:37 pm

new000 wrote:
whodidntante wrote:I can tell you what I did. I stopped thinking in terms of buckets. I have equity index etfs in taxable and bonds and a stable value fund in my 401k. If I need to raise cash for current spending I trade to get the cash and to restore my desired asset allocation. The reasons I do it that way are greater tax efficiency and higher returns.


Thanks for your input. Currently, for taxable , i have FSTVX ,FTIPX and FSITX . Any better suggestions on fidelity tickers?


Those are excellent funds but in taxable IVV and IXUS will be more efficient. IVV has 100% qualified dividends and both ETFs are less likely to distribute a capital gain than a mutual fund. I don't hold a bond fund in taxable. I put bonds in tax deferred.


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