Is there CD funds in VG to be used for IRA's?

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Gamma Ray
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Is there CD funds in VG to be used for IRA's?

Post by Gamma Ray » Tue Nov 06, 2018 1:18 am

I was wondering instead of trying to keep funds in Bonds, can we move some of it to CDs in IRA's and if VG offers any CD funds? Currently I am seeing CD APYs in mid 2's to 3's, but if I keep my cash in CDs the taxes will be high.

billfromct
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Re: Is there CD funds in VG to be used for IRA's?

Post by billfromct » Tue Nov 06, 2018 1:31 am

If the CDs were in an IRA, there would not be any tax implications.

Vanguard does not have any "CD funds", but I'm sure you can purchase CDs inside your IRA.

bill

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Re: Is there CD funds in VG to be used for IRA's?

Post by RickBoglehead » Tue Nov 06, 2018 1:59 am

I own brokered CDs in my IRAs at Vanguard.

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Re: Is there CD funds in VG to be used for IRA's?

Post by csurtman » Tue Nov 06, 2018 6:25 am

I have quite a few brokered CD's in my VG IRA account. Commission to buy is 1/10 of 1% and there is no commission to sell, and no penalty for selling before maturity date. The paper values of my CD's have gone down this year because of the rise in interest rates, but as long as I hold them to maturity I'll receive the full par value. FDIC insurance applies per $250,000 maximum for each bank.

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Re: Is there CD funds in VG to be used for IRA's?

Post by rkhusky » Tue Nov 06, 2018 7:25 am

Note that brokered CD's will act like bonds in that they will lose value if interest rates go up. So, you may want to plan on holding the brokered CD's to maturity.

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Re: Is there CD funds in VG to be used for IRA's?

Post by sport » Tue Nov 06, 2018 10:52 am

csurtman wrote:
Tue Nov 06, 2018 6:25 am
I have quite a few brokered CD's in my VG IRA account. Commission to buy is 1/10 of 1% and there is no commission to sell, and no penalty for selling before maturity date. The paper values of my CD's have gone down this year because of the rise in interest rates, but as long as I hold them to maturity I'll receive the full par value. FDIC insurance applies per $250,000 maximum for each bank.
The commission to buy brokered CDs at Vanguard applies only to CDs bought on the secondary market. Original issue CDs have no commission to buy.

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Earl Lemongrab
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Re: Is there CD funds in VG to be used for IRA's?

Post by Earl Lemongrab » Tue Nov 06, 2018 2:29 pm

Not the bank CDs that people often think about, where you buy at a certain interest rate and then keep until it runs out or break it with an early withdrawal penalty. Some banks and other financial institutions will offer those for IRAs. Brokerages typically do not.

You can buy brokered CDs where the cost is determined by the interest rate and remaining time to maturity. If you want to get rid of one, you have to then sell on the market. These are very close to being Treasury bonds, so you should compare rates and terms.
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Re: Is there CD funds in VG to be used for IRA's?

Post by sport » Tue Nov 06, 2018 2:44 pm

Earl Lemongrab wrote:
Tue Nov 06, 2018 2:29 pm
You can buy brokered CDs where the cost is determined by the interest rate and remaining time to maturity.
This is true for CDs on the secondary market. New issue CDs are bought at face value. At Vanguard, the minimum purchase for new issues is 10K and 1K increments above that . So, a 10K CD will cost 10K, no more, no less.

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Re: Is there CD funds in VG to be used for IRA's?

Post by Earl Lemongrab » Tue Nov 06, 2018 2:59 pm

sport wrote:
Tue Nov 06, 2018 2:44 pm
Earl Lemongrab wrote:
Tue Nov 06, 2018 2:29 pm
You can buy brokered CDs where the cost is determined by the interest rate and remaining time to maturity.
This is true for CDs on the secondary market. New issue CDs are bought at face value. At Vanguard, the minimum purchase for new issues is 10K and 1K increments above that . So, a 10K CD will cost 10K, no more, no less.
Correct, but otherwise it's the same. No early out, just selling on the market.
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Re: Is there CD funds in VG to be used for IRA's?

Post by Gamma Ray » Thu Nov 08, 2018 2:26 pm

rkhusky wrote:
Tue Nov 06, 2018 7:25 am
Note that brokered CD's will act like bonds in that they will lose value if interest rates go up. So, you may want to plan on holding the brokered CD's to maturity.
Good point, yes I am aware of this, since it will be in IRA, I plan to leave it in there until maturity.
RickBoglehead wrote:
Tue Nov 06, 2018 1:59 am
I own brokered CDs in my IRAs at Vanguard.
Where do you find those? I am getting ready to transfer some funds from our employer sponsored retirement to my IRA at VG and I would like to instruct VG to put those funds into my Traditional IRA into CDs. Can you tell me the fund code/number so I can look it up? I am only seeing Bonds when I go to purchase, but no CDs. Even in bonds, I don't see fixed rate bonds anywhere. If I want to keep the funds in a fixed rate return, I figured CD would be the only way. I don't mind putting some in bonds if they don't lose value if I keep them until maturity but I don't see any bond with fixed 2 or 3% return.

Are those similar to bank CDs, for example 5 years x% etc, and what do they do when it reaches maturity? Do they remind you and ask if you want to sell, or do they automatically convert it to cash/money market withing IRA?

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Re: Is there CD funds in VG to be used for IRA's?

Post by RickBoglehead » Thu Nov 08, 2018 2:52 pm

They are bank CDs. There is no fund or code number. Find them from this link:

https://investor.vanguard.com/cd-bond/

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Re: Is there CD funds in VG to be used for IRA's?

Post by sport » Thu Nov 08, 2018 4:26 pm

Use the pull down menu at the top of the Vanguard web page. Click on "investing". Then select "CDs and Bonds". Then click on find CDs. Choose the maturity you want to consider. This will show you the original issue CDs that are available. Click on the CD you want to buy. 10K minimum and 1K increments. Secondary CDs are a little more complicated, but not much.

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Re: Is there CD funds in VG to be used for IRA's?

Post by Gamma Ray » Mon Nov 12, 2018 5:46 pm

Thanks for the answers, so just to be sure, if I select a bond or CD and buy it under my Traditional IRA, if it says 3.5% with 5 years, if I don't sell/exchange it before maturity, it guarantees 3.5%, as long as that company doesn't bankrupt, right? I see some municipal bonds and BBB rated bonds that give up to 5-6%.

For example,
GE Capital Internotes Conditional Puts - Death Of Holder is showing 5.750 with 02/15/2023 maturity date.
Can someone just rest $25,000 of my AA in this, and get 5.75 per year and receive $33,000 in 2023 with no tax implications?
Ford Mtr Co Del is showing 8.875, am I missing something, these are great returns compared to volatility of the market especially if someone is approaching retirement in next 5-7 years, isn't that correct?

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Re: Is there CD funds in VG to be used for IRA's?

Post by Broken Man 1999 » Mon Nov 12, 2018 6:51 pm

Gamma Ray wrote:
Mon Nov 12, 2018 5:46 pm
Thanks for the answers, so just to be sure, if I select a bond or CD and buy it under my Traditional IRA, if it says 3.5% with 5 years, if I don't sell/exchange it before maturity, it guarantees 3.5%, as long as that company doesn't bankrupt, right? I see some municipal bonds and BBB rated bonds that give up to 5-6%.

For example,
GE Capital Internotes Conditional Puts - Death Of Holder is showing 5.750 with 02/15/2023 maturity date.
Can someone just rest $25,000 of my AA in this, and get 5.75 per year and receive $33,000 in 2023 with no tax implications?
Ford Mtr Co Del is showing 8.875, am I missing something, these are great returns compared to volatility of the market especially if someone is approaching retirement in next 5-7 years, isn't that correct?
Great rates because the corporate bonds are more risky. The CDs are backed by the FDIC (up to $250,000 per bank, as mentioned up-thread by csurtman).

Are you feeling lucky? I wouldn't buy corporate bonds for fixed income because I want maximum safety, either through US Treasury bonds or FDIC backed CDs.

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Re: Is there CD funds in VG to be used for IRA's?

Post by Kevin M » Mon Nov 12, 2018 9:05 pm

For maturities out to about one year, I would buy Treasuries instead of CDs, as the yields are higher. A 1-year Treasury yields about 2.8%, while the 1-year new-issue CD yield is 2.65% at Vanguard. The 1-year Treasuries are auctioned once per month.

At 2-year maturity, the new-issue CD yields are ahead, at 3.10% compared to about 2.9% for a 2-year Treasury. The spreads for CDs over Treasuries increase as you increase maturity beyond two years, but personally I would not go beyond 2-year maturity, as I don't feel that the additional yield is enough to compensate me for the additional term risk.

Kevin
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Re: Is there CD funds in VG to be used for IRA's?

Post by Gamma Ray » Wed Nov 14, 2018 3:26 pm

Broken Man 1999 wrote:
Mon Nov 12, 2018 6:51 pm
Great rates because the corporate bonds are more risky. The CDs are backed by the FDIC (up to $250,000 per bank, as mentioned up-thread by csurtman).

Are you feeling lucky? I wouldn't buy corporate bonds for fixed income because I want maximum safety, either through US Treasury bonds or FDIC backed CDs.
Thanks, I found the US Treasury buying process complicated (only because I am not familiar with it, I suppose)
Looking at this https://personal.vanguard.com/us/funds/ ... ryauctions I have no idea how I can go about buying any one of these?

Do I just transfer my money to brokerage money market, and then ask VG to get me the bonds in next auction? I am not sure I like "auction" with retirement investment. Isn't it supposed to be just X amount for #% for Z number of years?

In terms of luck, you mean companies like Ford can't be trusted with 5 year bonds?
Kevin M wrote:
Mon Nov 12, 2018 9:05 pm
For maturities out to about one year, I would buy Treasuries instead of CDs, as the yields are higher. A 1-year Treasury yields about 2.8%, while the 1-year new-issue CD yield is 2.65% at Vanguard. The 1-year Treasuries are auctioned once per month.

At 2-year maturity, the new-issue CD yields are ahead, at 3.10% compared to about 2.9% for a 2-year Treasury. The spreads for CDs over Treasuries increase as you increase maturity beyond two years, but personally I would not go beyond 2-year maturity, as I don't feel that the additional yield is enough to compensate me for the additional term risk.
I am just trying to play safe with longest possible term because I think VG is still exposing too much even with target retirement funds. I want to make sure that specific percentage of my AA will never lose value for specific period, in this case 5 years. Anything below 3% is not really worth complicating the portfolio, so if we can get 4.5-5% for 5-7yrs, I would not mind doing that.

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Re: Is there CD funds in VG to be used for IRA's?

Post by welderwannabe » Wed Nov 14, 2018 3:41 pm

Buying a treasury at Vanguard in your IRA is easy. Just make sure you have money in your settlement fund. Then you put your buy order in whenever the auction announcement date is. Its a 2 minute process. Hardest part is making sure you remember to put the order in between the announcement date and the actual auction date. Sometimes that window can be as small as 24 hours...sometimes it is as long as a week.

The auction makes it sound worse than it is. Others bid. You don't. As a non competitive buyer you automatically get the best price. The auction is really just a process that lets the free market determine the yield (interest rate).
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Re: Is there CD funds in VG to be used for IRA's?

Post by Kevin M » Wed Nov 14, 2018 4:02 pm

Gamma Ray wrote:
Wed Nov 14, 2018 3:26 pm
I am just trying to play safe with longest possible term because I think VG is still exposing too much even with target retirement funds. I want to make sure that specific percentage of my AA will never lose value for specific period, in this case 5 years. Anything below 3% is not really worth complicating the portfolio, so if we can get 4.5-5% for 5-7yrs, I would not mind doing that.
OK, but just to be sure you're thinking clearly about this, although your 5-year nominal return is essentially guaranteed with a 5-year CD or 5-year Treasury (other than some variation due to how you reinvest the interest payments), your 5-year real (inflation-adjusted) return is uncertain. If we get unexpectedly high inflation, you could end up losing value in real terms, or at least not earning as much as expected. The way to ensure a relatively certain 5-year real return would be to buy a 5-year TIPS.

With this in mind, if you want to go with a 5-year nominal fixed-income security, I would go for the 5-year CD at 3.55%. By comparison, the 5-year Treasury yield is shown as 2.96%.

Note that the 5-year CD yield is higher than the highest grade 5-year corporate yield at 3.47%. Yes, you can get a higher yield with a 5-year corporate by going to a lower credit rating, but there's a reason for the higher yields as you go down the credit-rating scale--higher risk of default. If you want the highest level of certainty, go with something with little to no credit risk, like a Treasury or FDIC-insured CD.

There's not much point in discussing the details of buying Treasuries if you want the highest yield for a 5-year term with little to no credit risk, as a 5-year CD has significantly higher yield, but if you change your mind, we can provide more details on the mechanics of buying Treasuries.

Kevin
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Re: Is there CD funds in VG to be used for IRA's?

Post by wfrobinette » Fri Nov 16, 2018 5:02 pm

Gamma Ray wrote:
Mon Nov 12, 2018 5:46 pm
Thanks for the answers, so just to be sure, if I select a bond or CD and buy it under my Traditional IRA, if it says 3.5% with 5 years, if I don't sell/exchange it before maturity, it guarantees 3.5%, as long as that company doesn't bankrupt, right? I see some municipal bonds and BBB rated bonds that give up to 5-6%.

For example,
GE Capital Internotes Conditional Puts - Death Of Holder is showing 5.750 with 02/15/2023 maturity date.
Can someone just rest $25,000 of my AA in this, and get 5.75 per year and receive $33,000 in 2023 with no tax implications?
Ford Mtr Co Del is showing 8.875, am I missing something, these are great returns compared to volatility of the market especially if someone is approaching retirement in next 5-7 years, isn't that correct?
I looked at those ford bonds and I think there is a min purchase of 200 or $200k +- premium or discount. There is much more risk there that's we you're getting a 5+% premium.

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Re: Is there CD funds in VG to be used for IRA's?

Post by averagedude » Fri Nov 16, 2018 5:15 pm

wfrobinette wrote:
Fri Nov 16, 2018 5:02 pm
Gamma Ray wrote:
Mon Nov 12, 2018 5:46 pm
Thanks for the answers, so just to be sure, if I select a bond or CD and buy it under my Traditional IRA, if it says 3.5% with 5 years, if I don't sell/exchange it before maturity, it guarantees 3.5%, as long as that company doesn't bankrupt, right? I see some municipal bonds and BBB rated bonds that give up to 5-6%.

For example,
GE Capital Internotes Conditional Puts - Death Of Holder is showing 5.750 with 02/15/2023 maturity date.
Can someone just rest $25,000 of my AA in this, and get 5.75 per year and receive $33,000 in 2023 with no tax implications?
Ford Mtr Co Del is showing 8.875, am I missing something, these are great returns compared to volatility of the market especially if someone is approaching retirement in next 5-7 years, isn't that correct?
I looked at those ford bonds and I think there is a min purchase of 200 or $200k +- premium or discount. There is much more risk there that's we you're getting a 5+% premium.
There is no free lunch here. This is taking huge credit risks.

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Re: Is there CD funds in VG to be used for IRA's?

Post by Gamma Ray » Sat Nov 17, 2018 5:35 pm

Kevin M wrote:
Wed Nov 14, 2018 4:02 pm
OK, but just to be sure you're thinking clearly about this, although your 5-year nominal return is essentially guaranteed with a 5-year CD or 5-year Treasury (other than some variation due to how you reinvest the interest payments), your 5-year real (inflation-adjusted) return is uncertain. If we get unexpectedly high inflation, you could end up losing value in real terms, or at least not earning as much as expected. The way to ensure a relatively certain 5-year real return would be to buy a 5-year TIPS.

With this in mind, if you want to go with a 5-year nominal fixed-income security, I would go for the 5-year CD at 3.55%. By comparison, the 5-year Treasury yield is shown as 2.96%.

Note that the 5-year CD yield is higher than the highest grade 5-year corporate yield at 3.47%. Yes, you can get a higher yield with a 5-year corporate by going to a lower credit rating, but there's a reason for the higher yields as you go down the credit-rating scale--higher risk of default. If you want the highest level of certainty, go with something with little to no credit risk, like a Treasury or FDIC-insured CD.

There's not much point in discussing the details of buying Treasuries if you want the highest yield for a 5-year term with little to no credit risk, as a 5-year CD has significantly higher yield, but if you change your mind, we can provide more details on the mechanics of buying Treasuries.

Kevin
Thanks for the suggestions, but I am comparing what we may or may not get from market, vs what we are sure to get. 5%-6% guaranteed return after 5 years is much better than not knowing how much we will get from the market. This just to balance the portfolio and keep part of the cash reserves that we don't need in the next 5 yrs. I don't see any CD in VG that offers more the 3.55%

wfrobinette wrote:
Fri Nov 16, 2018 5:02 pm
I looked at those ford bonds and I think there is a min purchase of 200 or $200k +- premium or discount. There is much more risk there that's we you're getting a 5+% premium.

Where do you see those details?

AlexanderTheMediocre
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Re: Is there CD funds in VG to be used for IRA's?

Post by AlexanderTheMediocre » Sat Nov 17, 2018 6:20 pm

There is no such thing as a free lunch. Corporate bonds that offer 5% or more do so because your money is at risk. The corporation could default and you will get nothing. If you need guaranteed safety, you have to stick to treasury securities or CDs.

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Re: Is there CD funds in VG to be used for IRA's?

Post by Global100 » Sat Nov 17, 2018 7:42 pm

Investors with only CDs in IRA accounts may want to stagger the CD's maturity dates to have liquid funds each year to cover the annual RMD (if approaching/at the age to start mandatory withdrawals).

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