Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

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longlife
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Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

The stocks+bonds AA has been the most classic portfolios used by everyone, including myself. But with the raising interest rates, the bonds’ performance is looking bad. Of course stocks are bleeding even more due to the market trends. Basically everything in my stocks+bonds portfolio is losing money for a while.

This makes me rethink of my AA. The stocks component is irreplaceable and the risk from it is inevitable, but I start looking for bonds alternatives. There are several fixed income vehicles:

-- CDs: Due to liquidity I only consider brokered CDs. They used to have lower rates before, but now the rates start to look good. Here is the latest rates from Fidelity: https://www.fidelity.com/fixed-income-bonds/cds

-- Individual bonds/treasuries: One can lose money by holding bond funds, but will never lose the principal and will get preset interests by holding individual bonds to maturity. Before maturity the bond’s value can fluctuate just like bond funds, so this only makes sense if one holds the bonds to maturity.

-- MYGAs: seems to be a great choice for very long term.

-- Others: I bonds, EE bonds, HYSA, anything else?

Of course none of the above offers high rates, but they are (almost) risk-free and guarantee interest earning with no loss in principal. Still way better than cash or saving accounts given the inflation, and of less risk than bond funds under raising interest rates.

It seems to me that CDs are good for short term like a year or two, and MYGAs are good for very long term like 10+ years.

I will still keep some proportion of my bond funds in my AA, but add a short CD ladder (up to 3 years) as a replacement. As I get to learn more about MYGAs, I might add MYGAs in my portfolio too.

Do you guys still stick with bond funds in any case? Am I wise to replace part of bonds with CDs, at least in the short term? Are there some other good choices I should look into?

Thanks.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by Parkinglotracer »

I like your choices. I have some fixed income in the tsp g fund - that is avail to ex federal employees.

Also some in a mm fund paying 1%.
AnEngineer
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by AnEngineer »

A 401k stable value fund can make sense in some cases.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by mega317 »

longlife wrote: Fri May 13, 2022 8:59 pm -- CDs: Due to liquidity I only consider brokered CDs.
Brokered CDs are less liquid that direct.

You're basically rearranging deck chairs here. At various times there are deals to be had, sometimes CDs or treasuries are clearly better than other options, sometimes not. But your proposal to move from a bond fund to a mishmash of individual holdings, some to maturity, some ladder, seems like adding a whole lot of complexity for essentially no benefit. If you choose a bond fund of appropriate duration for your purposes, you shouldn't let NAV fluctuations bother you.

But I'd max out your I bonds for now.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
RetiOpening
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by RetiOpening »

I’m also curious why I Bonds seem to be so low on your list. They are for me the most logical bond fund alternative.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by secondopinion »

From my experience of brokered CDs, I would take treasuries if liquidity is needed. I only consider non-brokered CDs due to the withdrawal penalty capping losses against interest rate increases (right now, they are not a great deal; but that is how the non-marketable market is).

As far as not holding bond funds to guarantee yield with individual bonds, opportunity and reinvestment risks are still a thing. At the end of the day, it is not an overly fruitful exercise unless you have a bit of experience and some time on your hands to do the work for little improvement in return (unless you are duration matching, then it works relatively well).

How much experience do you have with these alternatives to bonds and with bond funds and with bonds themselves? Granted, investors have to learn if they want to do it the hard way to use all of these choices; but I do not think most people would enjoy taking the role of a bond fund manager. I do not mind, but that is because I love investing and the theory of it.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by secondopinion »

RetiOpening wrote: Sat May 14, 2022 12:56 am I’m also curious why I Bonds seem to be so low on your list. They are for me the most logical bond fund alternative.
If one has a lot of bonds, it is impossible to replace bonds out for I-bonds. For me, they are a non-trivial portion but not a large one by any means.

They are a great deal but a limited deal.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by Stinky »

A caveat on MYGAs compared to CDs and bonds is that MYGAs usually have relatively high surrender charges if they are redeemed prior to the expiration of the guarantee period. Most MYGAs also have market value adjustments, which would work in a generally similar fashion to the market value adjustments that would apply to individual bonds or brokered CDs.

So a person who is considering a MYGA should be HIGHLY confident that they can hold the MYGA for the entire guarantee period.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by Chardo »

MYGA can be a short as 3 years, so not "very long term".

I Bonds are a great opportunity, but limited in amount. For someone with a sizeable portfolio, they are not enough to move the needle.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by hoops777 »

Chardo wrote: Sat May 14, 2022 8:05 am MYGA can be a short as 3 years, so not "very long term".

I Bonds are a great opportunity, but limited in amount. For someone with a sizeable portfolio, they are not enough to move the needle.
There are a few threads on how to buy IBonds in higher quantities.
Everyone complains about IBonds yearly limit, but if you buy them over time they do move the needle.
I am sure there are people on this forum with 500,000 in IBonds.
K.I.S.S........so easy to say so difficult to do.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by BigJohn »

In this inflationary environment, nominal treasuries can lose ground, may be significant ground, in terms of purchasing power. Have you considered TIPS? Benefits vs nomial treasuries in my mind are the same safety minus inflation risk. They also have most of the inflation insurance benefits of I bonds without the issue of purchase limits
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by jvini »

Very timely post as I've been wondering (and posting similarly). I moved about 1m to a stable value fund paying about 1.8% and a third more into a short term bond fund (VGSH) at the end of 2021 because I worried about inflation and the Fed (I'm glad I did) and the effect on VGIT, my intermediate term bond fund. I'm 55 and plan to work a couple more years because I want to. We have put away a lot and are in fortunate to be in good shape to retire on a 3% withdrawal with no debt and a nice home. I'm so thankful for our situation.

Rather than take the risk in bond funds as inflation continues to rise and the Fed is about to raise rates AND sell some of their bond holdings (they've told us that and I believe them), both of which will raise rates and lower the NAV's of bond funds, I'm thinking of going into brokered CDs at Fidelity. I'll either do the ladder they offer or just buy a 3 year CD in June that I expect will be even more than the 3.15% currently offered. I'd rather get the guaranteed 30K+ a year for 3 years than keep getting the lower rate on my stable value fund and rather than taking a risk in an intermediate bond fund (VGIT). *The money I saved by going into a stable value fund is about a year's worth of living expenses and the CD will provide about the same. It's not a small sum we're talking about. At this point I'm not sure buying I bonds would make a big difference.

Yes, if rates rise and I go into a bond fund, and then the Fed lowers rates I could lose out on some returns, but at this point I think our situation allows us to take less risk and be happy with the 3 year CD. It should be also noted that we currently have about 8 months of savings in a 'high-yield' savings account and I have a package if I leave work that will cover about 2 years.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by jjunk »

For us, seeing our bond holdings drop 10% made us rethink our position with our "safe" money. Given I held this in my taxable account (because I am out of tax advantaged space) and I plan to use the money from these holdings to pay my retirement expenses when I retire, it refocused us on not losing principal to capital losses. So we've switched from our normal BND/BIV holdings to a shorter term (3yr) Treasury+CD ladder. I realize this still loses out to inflation but keeping the principal safe while earning some sort of interest ended up being the right call for us. I still own Total Bond via my Vanguard Balanced holdings in IRAs and 401k.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by patrick »

The recent increase in bond yields makes bonds a better deal than they were a year ago. Most of the alternative to regular bonds have not seen comparable increases, so the comparison looks more favorable to regular bonds than before.

I bonds: Their fixed rate is still 0% which is now lower than TIPS at 7 years or more. As recently as the start of this year, TIPS were negative at every maturity thus making I bonds clearly better. I bonds still have the advantage of deferring taxes and won't go down in case of deflation. For the moment also have the advantage of being backward-looking and thus get a brief 9.62% rate due to inflation in the recent past. These advantages likely make them still worth buying, though if TIPS yields increase any further it may be worth redeeming I bonds after the 6 months of 9.62% are finished.

EE bonds: If held 20 years their yield of 3.53% is slightly above the 3.32% of 20-year nominal treasuries, but the advantage is not nearly as large as two years ago when the regular treasuries only yielded 1.03%. The interest rate advantage now is so small that EE bonds are probably only worth it if you are extremely sure you won't redeem before 20 years.

HYSA: The best general HYSA right now seems to be Bask Bank which pays only 1.25% which is lower than you could get two years ago. The only savings accounts with truly competitive interest rates have relatively low balance limits and sometimes other restrictions. These are the best ones I've found:

6.17% at Digital Credit Union on the first $1,000.
6% at H-E-B Debit on the first $2,000. Requires some activity every 90 days to avoid fees, a $1 ACH push into the account is sufficient.
4% at Current on the first $6,000.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

Parkinglotracer wrote: Fri May 13, 2022 9:21 pm I like your choices. I have some fixed income in the tsp g fund - that is avail to ex federal employees.

Also some in a mm fund paying 1%.
Curious which mm fund is at 1% now? I just checked VMFXX is now at 0.03% at 1 yr yield, and SPAXX is even worse at a miserable 0.01%
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

RetiOpening wrote: Sat May 14, 2022 12:56 am I’m also curious why I Bonds seem to be so low on your list. They are for me the most logical bond fund alternative.
100% agree I bonds is one of the best in today's world but I have maxed out my I bonds. The annual cap on I bonds purchase makes it hard to move the needle in my AA.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

mega317 wrote: Fri May 13, 2022 11:56 pm
longlife wrote: Fri May 13, 2022 8:59 pm -- CDs: Due to liquidity I only consider brokered CDs.
Brokered CDs are less liquid that direct.

You're basically rearranging deck chairs here. At various times there are deals to be had, sometimes CDs or treasuries are clearly better than other options, sometimes not. But your proposal to move from a bond fund to a mishmash of individual holdings, some to maturity, some ladder, seems like adding a whole lot of complexity for essentially no benefit. If you choose a bond fund of appropriate duration for your purposes, you shouldn't let NAV fluctuations bother you.

But I'd max out your I bonds for now.
Admittedly I am not very familiar with CDs/MYGAs as I never invest in them. Can you elaborate why brokered CDs are less liquid? From what I learned from some online articles, liquidity is considered as one advantage of brokered CDs. Another advantage I learned is I don't need to create multiple accounts at different banks/CUs to construct a CD ladder, and to be FDIC insured for more than 250k, i.e., convenience + security for large amount. Please correct me if wrong.

I am maxing out my I bonds, but the annual cap makes it hard to move the needle in my AA.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by hoops777 »

longlife wrote: Sat May 14, 2022 9:37 pm
mega317 wrote: Fri May 13, 2022 11:56 pm
longlife wrote: Fri May 13, 2022 8:59 pm -- CDs: Due to liquidity I only consider brokered CDs.
Brokered CDs are less liquid that direct.

You're basically rearranging deck chairs here. At various times there are deals to be had, sometimes CDs or treasuries are clearly better than other options, sometimes not. But your proposal to move from a bond fund to a mishmash of individual holdings, some to maturity, some ladder, seems like adding a whole lot of complexity for essentially no benefit. If you choose a bond fund of appropriate duration for your purposes, you shouldn't let NAV fluctuations bother you.

But I'd max out your I bonds for now.
Admittedly I am not very familiar with CDs/MYGAs as I never invest in them. Can you elaborate why brokered CDs are less liquid? From what I learned from some online articles, liquidity is considered as one advantage of brokered CDs. Another advantage I learned is I don't need to create multiple accounts at different banks/CUs to construct a CD ladder, and to be FDIC insured for more than 250k, i.e., convenience + security for large amount. Please correct me if wrong.

I am maxing out my I bonds, but the annual cap makes it hard to move the needle in my AA.
You can sell a brokered cd early but you could take a hit depending on the market.If you hold it to maturity you are fine. On the other hand you could also sell for a profit depending on the market.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

hoops777 wrote: Sat May 14, 2022 12:20 pm
Chardo wrote: Sat May 14, 2022 8:05 am ...

I Bonds are a great opportunity, but limited in amount. For someone with a sizeable portfolio, they are not enough to move the needle.
There are a few threads on how to buy IBonds in higher quantities.
...
Can you elaborate a little on this one? I did some research from google before about the annual purchase cap. do you mean the trick of buying more I bonds via gifting?
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

jvini wrote: Sat May 14, 2022 1:37 pm Very timely post as I've been wondering (and posting similarly). I moved about 1m to a stable value fund paying about 1.8% and a third more into a short term bond fund (VGSH) at the end of 2021 because I worried about inflation and the Fed (I'm glad I did) and the effect on VGIT, my intermediate term bond fund. I'm 55 and plan to work a couple more years because I want to. We have put away a lot and are in fortunate to be in good shape to retire on a 3% withdrawal with no debt and a nice home. I'm so thankful for our situation.

Rather than take the risk in bond funds as inflation continues to rise and the Fed is about to raise rates AND sell some of their bond holdings (they've told us that and I believe them), both of which will raise rates and lower the NAV's of bond funds, I'm thinking of going into brokered CDs at Fidelity. I'll either do the ladder they offer or just buy a 3 year CD in June that I expect will be even more than the 3.15% currently offered. I'd rather get the guaranteed 30K+ a year for 3 years than keep getting the lower rate on my stable value fund and rather than taking a risk in an intermediate bond fund (VGIT). *The money I saved by going into a stable value fund is about a year's worth of living expenses and the CD will provide about the same. It's not a small sum we're talking about. At this point I'm not sure buying I bonds would make a big difference.

Yes, if rates rise and I go into a bond fund, and then the Fed lowers rates I could lose out on some returns, but at this point I think our situation allows us to take less risk and be happy with the 3 year CD. It should be also noted that we currently have about 8 months of savings in a 'high-yield' savings account and I have a package if I leave work that will cover about 2 years.
I too have some savings in short term bond funds like VGSH which I considered safe, though it dropped -3% in the past few months. That was one trigger for me to look for bonds alternatives.

My accessibility to stable value fund is limited to my 401k account only. Are you able to buy stable value fund in your taxable account? (asking because I saw you mentioned 1M in stable value fund...)

I plan to buy Fidelity CDs which are currently at better rates (as far as I checked, they are better than most direct CDs I checked). It's possible the rates will be even better in June.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by jvini »

My 401k allows rollovers from my IRA, so I rolled over my bond fund money and added it to my stable value fund. Stable value is only available in accounts such as a 401k or 529. It also offers a brokerage account so I can buy a bond fund if I want to or individual bonds. We have other tax advantaged accounts at Fidelity where I may buy the brokered CD or CD ladder. .
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by bog007 »

brokered cd is simple interest. not compound
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by LeeMKE »

I came here looking for this same advice. Great minds. . .
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by jvini »

bog007 wrote: Sun May 15, 2022 2:26 am brokered cd is simple interest. not compound
True. Fidelity does allow automatic purchase of same duration CD.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by rosalee »

I note that CapOne bank now offers a 2yr CD at 1.7%, no minimum deposit. And a 1 yr CD at 1.25%. A few other banks offer higher interest rates.

I just bought some 26 week Treasury Bills paying 1.414% and will reinvest 3X. My first time at this, so i'm interested to see what happens.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by hudson »

longlife wrote: Fri May 13, 2022 8:59 pm -- CDs: Due to liquidity I only consider brokered CDs. They used to have lower rates before, but now the rates start to look good. Here is the latest rates from Fidelity: https://www.fidelity.com/fixed-income-bonds/cds

-- MYGAs: seems to be a great choice for very long term.

It seems to me that CDs are good for short term like a year or two, and MYGAs are good for very long term like 10+ years.

I will still keep some proportion of my bond funds in my AA, but add a short CD ladder (up to 3 years) as a replacement. As I get to learn more about MYGAs, I might add MYGAs in my portfolio too.

Do you guys still stick with bond funds in any case? Am I wise to replace part of bonds with CDs, at least in the short term? Are there some other good choices I should look into?

Thanks.
I can't make a recommendation for you unless you haven't read Larry Swedroe's bond book.
For me....
I like the highest quality fixed income...Treasuries and CDs
I haven't warmed up to MYGAs as they aren't as safe. Are they guaranteed by your state? Larry Swedroe bought some.
Treasuries (nominal or TIPS), regular CDs, or brokered CDs? I wouldn't hesitate to own any. I want the best deal after taxes.
I was looking last week and I saw a 5 year brokered CD going for 3.25%....nice!

I don't go short waiting on better rates. When I see 3% plus high quality fixed income, I strongly consider locking in those rates....if I have the cash...and I don't. Within 2 years, I want my fixed income to have a 10 year average duration using nominal and TIPS.

Funds or individual? High quality fixed income funds and high quality individual bonds are probably equal minus the expense ratio if held until the average duration. Sometimes I like funds, right now I've warmed up to CDs and individual treasuries. Some funds have very nice expense ratios like Schwab's TIPS fund SCHP...only .05%.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by Parkinglotracer »

longlife wrote: Sat May 14, 2022 9:27 pm
Parkinglotracer wrote: Fri May 13, 2022 9:21 pm I like your choices. I have some fixed income in the tsp g fund - that is avail to ex federal employees.

Also some in a mm fund paying 1%.
Curious which mm fund is at 1% now? I just checked VMFXX is now at 0.03% at 1 yr yield, and SPAXX is even worse at a miserable 0.01%
https://investor.vanguard.com/investmen ... mance-fees
https://fundresearch.fidelity.com/mutua ... /31617H102
T Mobile fdic insured mm account is paying 1% - no other requirements to get 1%. Maybe better deals out there now, I dunno.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

Just chatting with a friend close to retirement on related topics, he mentioned the Toyota notes which offer 1.5% APY when he bought in. Need to check the current APY but hopefully close. No caps, no maturity, no withdrawal penalty, reasonable APY in today's world. Obviously there is no free lunch so it does come with risk of no FDIC insurance. Maybe worth checking.

Anyone here has experience with this Toyota notes? How safe is it? is it a good candidate for emergency fund?

The T Mobile fund instead is FDIC (thanks Parkinglotracer for the information) which might be more preferred. 1% is not bad at all. I happen to be a T mobile customer so this is a minor plus :sharebeer

Another one my friend mentioned is ICSH which is almost like cash but with a better yield (maybe not now as I just checked). Other similar options are BIL and JPST.

Hope this helps everyone looking for the same information.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by secondopinion »

longlife wrote: Sat May 14, 2022 10:00 pm
jvini wrote: Sat May 14, 2022 1:37 pm Very timely post as I've been wondering (and posting similarly). I moved about 1m to a stable value fund paying about 1.8% and a third more into a short term bond fund (VGSH) at the end of 2021 because I worried about inflation and the Fed (I'm glad I did) and the effect on VGIT, my intermediate term bond fund. I'm 55 and plan to work a couple more years because I want to. We have put away a lot and are in fortunate to be in good shape to retire on a 3% withdrawal with no debt and a nice home. I'm so thankful for our situation.

Rather than take the risk in bond funds as inflation continues to rise and the Fed is about to raise rates AND sell some of their bond holdings (they've told us that and I believe them), both of which will raise rates and lower the NAV's of bond funds, I'm thinking of going into brokered CDs at Fidelity. I'll either do the ladder they offer or just buy a 3 year CD in June that I expect will be even more than the 3.15% currently offered. I'd rather get the guaranteed 30K+ a year for 3 years than keep getting the lower rate on my stable value fund and rather than taking a risk in an intermediate bond fund (VGIT). *The money I saved by going into a stable value fund is about a year's worth of living expenses and the CD will provide about the same. It's not a small sum we're talking about. At this point I'm not sure buying I bonds would make a big difference.

Yes, if rates rise and I go into a bond fund, and then the Fed lowers rates I could lose out on some returns, but at this point I think our situation allows us to take less risk and be happy with the 3 year CD. It should be also noted that we currently have about 8 months of savings in a 'high-yield' savings account and I have a package if I leave work that will cover about 2 years.
I too have some savings in short term bond funds like VGSH which I considered safe, though it dropped -3% in the past few months. That was one trigger for me to look for bonds alternatives.

My accessibility to stable value fund is limited to my 401k account only. Are you able to buy stable value fund in your taxable account? (asking because I saw you mentioned 1M in stable value fund...)

I plan to buy Fidelity CDs which are currently at better rates (as far as I checked, they are better than most direct CDs I checked). It's possible the rates will be even better in June.
-3% is kind of mild in my opinion. Is one truly going to care if their stocks dropped 20%+ that VGSH dropped a mere 3%? The actual damage to the portfolio is hardly discernible in comparison. That is safety.

Granted, we could get better returns elsewhere; but the 3% loss should not drive that.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by longlife »

secondopinion wrote: Sun May 15, 2022 2:31 pm
longlife wrote: Sat May 14, 2022 10:00 pm
jvini wrote: Sat May 14, 2022 1:37 pm Very timely post as I've been wondering (and posting similarly). I moved about 1m to a stable value fund paying about 1.8% and a third more into a short term bond fund (VGSH) at the end of 2021 because I worried about inflation and the Fed (I'm glad I did) and the effect on VGIT, my intermediate term bond fund. I'm 55 and plan to work a couple more years because I want to. We have put away a lot and are in fortunate to be in good shape to retire on a 3% withdrawal with no debt and a nice home. I'm so thankful for our situation.

Rather than take the risk in bond funds as inflation continues to rise and the Fed is about to raise rates AND sell some of their bond holdings (they've told us that and I believe them), both of which will raise rates and lower the NAV's of bond funds, I'm thinking of going into brokered CDs at Fidelity. I'll either do the ladder they offer or just buy a 3 year CD in June that I expect will be even more than the 3.15% currently offered. I'd rather get the guaranteed 30K+ a year for 3 years than keep getting the lower rate on my stable value fund and rather than taking a risk in an intermediate bond fund (VGIT). *The money I saved by going into a stable value fund is about a year's worth of living expenses and the CD will provide about the same. It's not a small sum we're talking about. At this point I'm not sure buying I bonds would make a big difference.

Yes, if rates rise and I go into a bond fund, and then the Fed lowers rates I could lose out on some returns, but at this point I think our situation allows us to take less risk and be happy with the 3 year CD. It should be also noted that we currently have about 8 months of savings in a 'high-yield' savings account and I have a package if I leave work that will cover about 2 years.
I too have some savings in short term bond funds like VGSH which I considered safe, though it dropped -3% in the past few months. That was one trigger for me to look for bonds alternatives.

My accessibility to stable value fund is limited to my 401k account only. Are you able to buy stable value fund in your taxable account? (asking because I saw you mentioned 1M in stable value fund...)

I plan to buy Fidelity CDs which are currently at better rates (as far as I checked, they are better than most direct CDs I checked). It's possible the rates will be even better in June.
-3% is kind of mild in my opinion. Is one truly going to care if their stocks dropped 20%+ that VGSH dropped a mere 3%? The actual damage to the portfolio is hardly discernible in comparison. That is safety.

Granted, we could get better returns elsewhere; but the 3% loss should not drive that.
-3% on VGSH isn't really a concern to us as we don't have much in VGSH and as you said, -3% is not that much. It was the -10% on BND in a few months that hurts us and made me rethink of bonds alternatives. We do have a big allocation on BND to be "conservative", so -10% on our conservative money was an ouch.
Last edited by longlife on Sun May 15, 2022 2:51 pm, edited 1 time in total.
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Stinky
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by Stinky »

longlife wrote: Sun May 15, 2022 2:21 pm Just chatting with a friend close to retirement on related topics, he mentioned the Toyota notes which offer 1.5% APY when he bought in. Need to check the current APY but hopefully close. No caps, no maturity, no withdrawal penalty, reasonable APY in today's world. Obviously there is no free lunch so it does come with risk of no FDIC insurance. Maybe worth checking.

Anyone here has experience with this Toyota notes? How safe is it? is it a good candidate for emergency fund?

The T Mobile fund instead is FDIC (thanks Parkinglotracer for the information) which might be more preferred. 1% is not bad at all. I happen to be a T mobile customer so this is a minor plus :sharebeer

Another one my friend mentioned is ICSH which is almost like cash but with a better yield (maybe not now as I just checked). Other similar options are BIL and JPST.

Hope this helps everyone looking for the same information.
Here’s a long thread on Toyota Notes. Currently paying 1.15%.

viewtopic.php?t=340088

I still have some money in Toyota Notes.
Former life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
exoilman
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by exoilman »

REFERENCE
secondopinion
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by secondopinion »

longlife wrote: Sun May 15, 2022 2:46 pm
secondopinion wrote: Sun May 15, 2022 2:31 pm
longlife wrote: Sat May 14, 2022 10:00 pm
jvini wrote: Sat May 14, 2022 1:37 pm Very timely post as I've been wondering (and posting similarly). I moved about 1m to a stable value fund paying about 1.8% and a third more into a short term bond fund (VGSH) at the end of 2021 because I worried about inflation and the Fed (I'm glad I did) and the effect on VGIT, my intermediate term bond fund. I'm 55 and plan to work a couple more years because I want to. We have put away a lot and are in fortunate to be in good shape to retire on a 3% withdrawal with no debt and a nice home. I'm so thankful for our situation.

Rather than take the risk in bond funds as inflation continues to rise and the Fed is about to raise rates AND sell some of their bond holdings (they've told us that and I believe them), both of which will raise rates and lower the NAV's of bond funds, I'm thinking of going into brokered CDs at Fidelity. I'll either do the ladder they offer or just buy a 3 year CD in June that I expect will be even more than the 3.15% currently offered. I'd rather get the guaranteed 30K+ a year for 3 years than keep getting the lower rate on my stable value fund and rather than taking a risk in an intermediate bond fund (VGIT). *The money I saved by going into a stable value fund is about a year's worth of living expenses and the CD will provide about the same. It's not a small sum we're talking about. At this point I'm not sure buying I bonds would make a big difference.

Yes, if rates rise and I go into a bond fund, and then the Fed lowers rates I could lose out on some returns, but at this point I think our situation allows us to take less risk and be happy with the 3 year CD. It should be also noted that we currently have about 8 months of savings in a 'high-yield' savings account and I have a package if I leave work that will cover about 2 years.
I too have some savings in short term bond funds like VGSH which I considered safe, though it dropped -3% in the past few months. That was one trigger for me to look for bonds alternatives.

My accessibility to stable value fund is limited to my 401k account only. Are you able to buy stable value fund in your taxable account? (asking because I saw you mentioned 1M in stable value fund...)

I plan to buy Fidelity CDs which are currently at better rates (as far as I checked, they are better than most direct CDs I checked). It's possible the rates will be even better in June.
-3% is kind of mild in my opinion. Is one truly going to care if their stocks dropped 20%+ that VGSH dropped a mere 3%? The actual damage to the portfolio is hardly discernible in comparison. That is safety.

Granted, we could get better returns elsewhere; but the 3% loss should not drive that.
-3% on VGSH isn't really a concern to us as we don't have much in VGSH and as you said, -3% is not that much. It was the -10% on BND in a few months that hurts us and made me rethink of bonds alternatives. We do have a big allocation on BND to be "conservative", so -10% on our conservative money was an ouch.
It is, but the point of BND is to take a mix of interest rate risk and reinvestment risk. With VGSH, the interest rate risk is very low but the reinvestment risk is rather high. In that context, BND is still kind of conservative; it just does not place all of the risk hedging in the short term.

So, maybe the better term for VGSH is not safety but principal stability. The principal that exists in the long term is going to be more variable than BND.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Bonds/CDs/MYGAs: Best non-stock vehicle in today’s world?

Post by hudson »

Fidelity Today:
5 year brokered CD 3.25%
5 year treasury 2.87%

Penfed
5 year CD 2.5%

Live Oak Bank Savings .8%

I don't know about MYGAs, Toyota, or T-Mobile. As far as safety, I'd rank them behind treasuries, bank CDs, and brokered CDs.

Bottom Line: Brokered looks good today.
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