Out of Market

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Duffydog1
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Out of Market

Post by Duffydog1 » Fri Sep 21, 2018 7:38 am

Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%. I also keep 10% in cash for emergency (2% Vanguard Prime MM). I am now looking solely at placing the remainder in a CD ladder. I am shooting for 4% but realize that is not achievable today. My question is very basic should I wait for rates to escalate over the next 6-12 months or create a CD ladder now that may include, 1,2 and even 3 year terms? Is 3 years to far a stretch? My minimum goal is 3%.I am considering using Vanguard brokered CDs so I can keep maintain better control over numerous CDs. I would also appreciate any advice about short term treasuries as I note that some of them have better rates than CDs.

J295
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Re: Out of Market

Post by J295 » Fri Sep 21, 2018 7:45 am

For me personally, when I decide to do something, I just do it. Which means when I created my CD ladder I just created it that day. As rates increase I have no regrets, because as CDs mature on my ladder I just replace them with higher interest-rate CD.

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SquawkIdent
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Re: Out of Market

Post by SquawkIdent » Fri Sep 21, 2018 7:52 am

J295 wrote:
Fri Sep 21, 2018 7:45 am
For me personally, when I decide to do something, I just do it. Which means when I created my CD ladder I just created it that day. As rates increase I have no regrets, because as CDs mature on my ladder I just replace them with higher interest-rate CD.
+1

Think about it very carefully and consider all outcomes. When you are ready to commit, just do it and don't look back. Good luck.

rkhusky
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Re: Out of Market

Post by rkhusky » Fri Sep 21, 2018 8:00 am

I find bond funds easier to deal with than CD's. Vanguard's Short Term Bond Index currently has a yield of 2.89% and Intermediate Term's is 3.40%.

aristotelian
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Re: Out of Market

Post by aristotelian » Fri Sep 21, 2018 8:06 am

Agree, don't get into market timing. If you are worried about inflation or rising interest rates, consider allocating a portion to TIPS.

I do like CD ladders as a way of increasing yield a bit over Treasuries without increasing risk.

One concern I will point out, with all due respect, at your age one concern I would have is whether you want your beneficiaries to inherit a CD ladder and deal with that kind of complexity. If you have a spouse who is not good at finances, will they know what to do when those CDs mature?

Another possibility would be something like Vanguard Lifestrategy Income, which is 20% stocks, and you could set and forget.

Grt2bOutdoors
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Re: Out of Market

Post by Grt2bOutdoors » Fri Sep 21, 2018 8:11 am

Duffydog1 wrote:
Fri Sep 21, 2018 7:38 am
Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%. I also keep 10% in cash for emergency (2% Vanguard Prime MM). I am now looking solely at placing the remainder in a CD ladder. I am shooting for 4% but realize that is not achievable today. My question is very basic should I wait for rates to escalate over the next 6-12 months or create a CD ladder now that may include, 1,2 and even 3 year terms? Is 3 years to far a stretch? My minimum goal is 3%.I am considering using Vanguard brokered CDs so I can keep maintain better control over numerous CDs. I would also appreciate any advice about short term treasuries as I note that some of them have better rates than CDs.
You have 70% to play with - consider a ladder of 1,2,3 and 5 year terms? Why 5 year terms? The 5 year terms are yielding over 3%, some portion allocated to 5 year bucket increases return, the risk is inflation, but with 20% in 5 year terms, you are not overly exposed to it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

sport
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Re: Out of Market

Post by sport » Fri Sep 21, 2018 10:16 am

Grt2bOutdoors wrote:
Fri Sep 21, 2018 8:11 am
The 5 year terms are yielding over 3%, some portion allocated to 5 year bucket increases return, the risk is inflation, but with 20% in 5 year terms, you are not overly exposed to it.
In addition to the risk of inflation, there is also opportunity risk. That means that if interest rates rise during the next 5 years, you are getting less than market rates when a shorter term CD lets you take advantage of the changes sooner. Unfortunately, this higher risk is not presently rewarded with significantly higher yield. In other words, the 5 year rate is not much more than the 4 year rate. One rule of thumb often cited on Bogleheads is that yield should be 0.2% higher, per year, for a longer CD or bond. Following this rule now will limit you to CDs no longer than 3 years.

pkcrafter
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Re: Out of Market

Post by pkcrafter » Fri Sep 21, 2018 3:57 pm

Duffydog1 wrote:
Fri Sep 21, 2018 7:38 am
Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%.
10% in stocks won't keep up with rising costs.

What high rated bonds are you holding that are yielding 4-5%. They must be long term, right?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Sandtrap
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Re: Out of Market

Post by Sandtrap » Fri Sep 21, 2018 4:08 pm

Grt2bOutdoors wrote:
Fri Sep 21, 2018 8:11 am
Duffydog1 wrote:
Fri Sep 21, 2018 7:38 am
Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%. I also keep 10% in cash for emergency (2% Vanguard Prime MM). I am now looking solely at placing the remainder in a CD ladder. I am shooting for 4% but realize that is not achievable today. My question is very basic should I wait for rates to escalate over the next 6-12 months or create a CD ladder now that may include, 1,2 and even 3 year terms? Is 3 years to far a stretch? My minimum goal is 3%.I am considering using Vanguard brokered CDs so I can keep maintain better control over numerous CDs. I would also appreciate any advice about short term treasuries as I note that some of them have better rates than CDs.
You have 70% to play with - consider a ladder of 1,2,3 and 5 year terms? Why 5 year terms? The 5 year terms are yielding over 3%, some portion allocated to 5 year bucket increases return, the risk is inflation, but with 20% in 5 year terms, you are not overly exposed to it.
+1
Great plan.

Dandy
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Re: Out of Market

Post by Dandy » Fri Sep 21, 2018 4:30 pm

Hopefully, the VG brokerage CDs will not be in a TIRA since that would create some potential issues with satisfying RMDs since some brokerage CDs might have to be sold (at a loss?) and in a timely manner.

I think it will take awhile to get a 4% CD ladder of say 5 years. You might want to start it now and work you way up to it. e.g. this year buy a 5, 3 and 2 year CD, Next year buy a 3 and a 5 year CD. Year three and beyond buy just a 5 year with money that matures.

Keep in mind that the brokerage CDs pay interest to your Fed Money Market account as it is earned. There is no option to reinvest the interest in the CD.

dkb140
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Re: Out of Market

Post by dkb140 » Fri Sep 21, 2018 4:32 pm

If you do want to move to CDs, Achieva CU is offering 4.2% IRA CDs, I'd look at those:
https://www.depositaccounts.com/banks/a ... cu/offers/

CRTR
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Re: Out of Market

Post by CRTR » Fri Sep 21, 2018 4:34 pm

sport wrote:
Fri Sep 21, 2018 10:16 am
Grt2bOutdoors wrote:
Fri Sep 21, 2018 8:11 am
The 5 year terms are yielding over 3%, some portion allocated to 5 year bucket increases return, the risk is inflation, but with 20% in 5 year terms, you are not overly exposed to it.
In addition to the risk of inflation, there is also opportunity risk. That means that if interest rates rise during the next 5 years, you are getting less than market rates when a shorter term CD lets you take advantage of the changes sooner. Unfortunately, this higher risk is not presently rewarded with significantly higher yield. In other words, the 5 year rate is not much more than the 4 year rate. One rule of thumb often cited on Bogleheads is that yield should be 0.2% higher, per year, for a longer CD or bond. Following this rule now will limit you to CDs no longer than 3 years.
A number of credit unions and banks offer 5 years CDs with small early withdrawal penalties. 6 month interest penalty is the most common although there are some better out there. That means the worst you can do if interest rates sky-rocket and you decide to cycle your CD early would be a total return of 1.75% in the year you cash it in (assuming 3.5% CD rate).

I believe a 5 year CD ladder has less risk and, in a rising rate environment, better returns (i.e. last 3 years) than a short-term bond fund. For example, VBISX (Vanguard short-term bond fund) has had poorer returns and greater volatility than a maturity matched (5 year) CD ladder the past 3 years. Alan Roth has written about this extensively.

FYI: www.depositaccounts.com is a good place screen for CDs.

b4real
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Re: Out of Market

Post by b4real » Fri Sep 21, 2018 5:55 pm

According to www.immediateannuities.com a life annuity for a male 78 would return about 10.6% per year. If you allocate the CD money to the annuity you may be comfortable taking a little more risk by putting the rest in target retirement income or lifestrategy income. You would then have a portfolio that provides more income, the potential for more growth, and requires almost no management.

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welderwannabe
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Re: Out of Market

Post by welderwannabe » Fri Sep 21, 2018 8:58 pm

Don't rule out treasuries. For short term (12 months and less) I find them to generally be more competitive than CDs. For instance, at Fidelity, new issued 3 month brokered CDs are 2.10%. 3 month TBill is about 2.18% right now.

If you are holding it in a taxable account the difference is even greater since the TBill is state tax exempt.

This varies, so its worth checking before each buy for each duration. They seem to see-saw a bit. Buy which ever pays you more because in my mind there is very little difference, except that there is often less of a spread selling a treasury on the secondary market...and secondaries are commission free at many brokerages. This can give the treasury a further edge. :beer
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

sport
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Re: Out of Market

Post by sport » Fri Sep 21, 2018 10:56 pm

CRTR wrote:
Fri Sep 21, 2018 4:34 pm
A number of credit unions and banks offer 5 years CDs with small early withdrawal penalties. 6 month interest penalty is the most common although there are some better out there. That means the worst you can do if interest rates sky-rocket and you decide to cycle your CD early would be a total return of 1.75% in the year you cash it in (assuming 3.5% CD rate).
OP stated that he/she was considering brokered CDs at Vanguard. There is no early withdrawal for those. If you want to cash out early, you must sell on the open market. If rates go up, the value of the CD goes down. Then, you have market spread to deal with. So, it is best to hold those CDs to maturity.

tampaite
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Re: Out of Market

Post by tampaite » Sat Sep 22, 2018 7:15 am

Duffydog1 wrote:
Fri Sep 21, 2018 7:38 am
Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%. I also keep 10% in cash for emergency (2% Vanguard Prime MM). I am now looking solely at placing the remainder in a CD ladder.
At 78, I would go with your plan although I have no idea what your total $ assests or liability you have.

I think interest rates will go up so best to lock in short term CDs.

tibbitts
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Re: Out of Market

Post by tibbitts » Sat Sep 22, 2018 7:33 am

Duffydog1 wrote:
Fri Sep 21, 2018 7:38 am
Never thought I would walkway from the market but at the age of 78 with health issues I decided to maintain about 10% of my assets in stocks (currently own) and another 10% in high rated corporate bonds (currently own) yielding 4-5%. I also keep 10% in cash for emergency (2% Vanguard Prime MM). I am now looking solely at placing the remainder in a CD ladder. I am shooting for 4% but realize that is not achievable today. My question is very basic should I wait for rates to escalate over the next 6-12 months or create a CD ladder now that may include, 1,2 and even 3 year terms? Is 3 years to far a stretch? My minimum goal is 3%.I am considering using Vanguard brokered CDs so I can keep maintain better control over numerous CDs. I would also appreciate any advice about short term treasuries as I note that some of them have better rates than CDs.
At your age with health issues I think the CD ladder would be too irritating for me, I'd just use funds. Yes owning them over the past year has been like constantly banging your head into a wall but that will give you something to take your mind off your health problems.

UpperNwGuy
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Re: Out of Market

Post by UpperNwGuy » Sat Sep 22, 2018 8:10 am

I would not get out of the market. I would stay in the market with a one-fund portfolio that is simple and conservative such as the Life Strategy income fund.

Duffydog1
Posts: 64
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Re: Out of Market

Post by Duffydog1 » Sat Sep 22, 2018 8:36 am

aristotelian wrote:
Fri Sep 21, 2018 8:06 am
Agree, don't get into market timing. If you are worried about inflation or rising interest rates, consider allocating a portion to TIPS.

I do like CD ladders as a way of increasing yield a bit over Treasuries without increasing risk.

One concern I will point out, with all due respect, at your age one concern I would have is whether you want your beneficiaries to inherit a CD ladder and deal with that kind of complexity. If you have a spouse who is not good at finances, will they know what to do when those CDs mature?

Another possibility would be something like Vanguard Lifestrategy Income, which is 20% stocks, and you could set and forget.
I have about 60,000 in the VG Life Strategy Income Fund as as test for the pat year. It has notion very well so far this year. One reason for considering VG as the source for purchasing CDs is that they will show up on my VG web page that illustrates all investments. I have stayed with VG as I am alway able to go on line and have a comprehensive look at all of my funds. My wife is not much into this but I have been working with her and she is now up to date. I have also included her in all calls with our VG advisor. My wife and I have not accepted our advisors recommendations as they were to heavily weighted toward equities (about 30%). We have sufficient financial resources so we don't have to take the risk he suggests.Cant seem to get that message across to him, but then again he is in the business of selling mutual funds.This forum has been extremely helpful to me, and I appreciate all all suggestions.Just noticed VG CDs are about 2.9% for 2 years not bad for us older folks.

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AAA
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Re: Out of Market

Post by AAA » Sat Sep 22, 2018 9:36 am

sport wrote:
Fri Sep 21, 2018 10:56 pm
OP stated that he/she was considering brokered CDs at Vanguard. There is no early withdrawal for those. If you want to cash out early, you must sell on the open market. If rates go up, the value of the CD goes down. Then, you have market spread to deal with. So, it is best to hold those CDs to maturity.
Also, although brokered CD's are FDIC insured for the original purchaser (assuming one is within the FDIC limits), when sold on the secondary market the bank's rating could have an adverse effect on the selling price.

sport
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Re: Out of Market

Post by sport » Sat Sep 22, 2018 10:11 am

AAA wrote:
Sat Sep 22, 2018 9:36 am
sport wrote:
Fri Sep 21, 2018 10:56 pm
OP stated that he/she was considering brokered CDs at Vanguard. There is no early withdrawal for those. If you want to cash out early, you must sell on the open market. If rates go up, the value of the CD goes down. Then, you have market spread to deal with. So, it is best to hold those CDs to maturity.
Also, although brokered CD's are FDIC insured for the original purchaser (assuming one is within the FDIC limits), when sold on the secondary market the bank's rating could have an adverse effect on the selling price.
Does the FDIC insurance apply only to the original purchaser? I would think the insurance applies to whomever owns the CD. Is there a source that says the insurance does not apply to a CD purchased in the secondary market?

Turbo29
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Re: Out of Market

Post by Turbo29 » Sat Sep 22, 2018 11:34 am

sport wrote:
Sat Sep 22, 2018 10:11 am
AAA wrote:
Sat Sep 22, 2018 9:36 am
sport wrote:
Fri Sep 21, 2018 10:56 pm
OP stated that he/she was considering brokered CDs at Vanguard. There is no early withdrawal for those. If you want to cash out early, you must sell on the open market. If rates go up, the value of the CD goes down. Then, you have market spread to deal with. So, it is best to hold those CDs to maturity.
Also, although brokered CD's are FDIC insured for the original purchaser (assuming one is within the FDIC limits), when sold on the secondary market the bank's rating could have an adverse effect on the selling price.
Does the FDIC insurance apply only to the original purchaser? I would think the insurance applies to whomever owns the CD. Is there a source that says the insurance does not apply to a CD purchased in the secondary market?
It's my understanding it is insured but only up to face value. If you pay a premium for a CD on the secondary market, the premium amount is not insured.

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AAA
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Re: Out of Market

Post by AAA » Sat Sep 22, 2018 12:51 pm

sport wrote:
Sat Sep 22, 2018 10:11 am
AAA wrote:
Sat Sep 22, 2018 9:36 am
sport wrote:
Fri Sep 21, 2018 10:56 pm
OP stated that he/she was considering brokered CDs at Vanguard. There is no early withdrawal for those. If you want to cash out early, you must sell on the open market. If rates go up, the value of the CD goes down. Then, you have market spread to deal with. So, it is best to hold those CDs to maturity.
Also, although brokered CD's are FDIC insured for the original purchaser (assuming one is within the FDIC limits), when sold on the secondary market the bank's rating could have an adverse effect on the selling price.
Does the FDIC insurance apply only to the original purchaser? I would think the insurance applies to whomever owns the CD. Is there a source that says the insurance does not apply to a CD purchased in the secondary market?
I don't know the answer to your question, but the issue I was referring to is that a large broker that buys and sells CD's on the secondary market can easily be above the FDIC limit at a particular bank. As such, the rating of the bank becomes important as the CD is not insured for them.

Turbo29
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Joined: Tue May 01, 2018 7:12 am

Re: Out of Market

Post by Turbo29 » Sat Sep 22, 2018 12:56 pm

So long as the broker puts it in your name you are fine.

https://www.fdic.gov/consumers/consumer ... okers.html

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