CD Ladder Discipline

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AAA
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CD Ladder Discipline

Post by AAA » Sun Mar 11, 2018 5:43 pm

For the past several years, I've been maintaining a five year CD ladder. Some are about to mature this month. Normally, I'd automatically reinvest them in five year CD's but given how rates have risen recently and the similarity of rates for 3 year and 5 year CD's, I'm having a hard time convincing myself to do that. Here are Vanguard's CD rates just for sake of illustration:

1 yr 2.05%
2 yr 2.50%
3 yr 2.70%
5 yr 2.85%

I get the reasoning for maintaining a ladder - we don't know what rates will do in the near future and if they go down it would be good to have locked in at 2.85%. But somehow I'm hesitant to go beyond 2 years at this time. I'd like to hear what others may be thinking. Thanks.

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welderwannabe
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Re: CD Ladder Discipline

Post by welderwannabe » Sun Mar 11, 2018 5:58 pm

I am in the same boat as you, except that I am dropping from a 2 year CD ladder to a 1 year treasury ladder.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

mega317
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Re: CD Ladder Discipline

Post by mega317 » Sun Mar 11, 2018 6:53 pm

This is a nice low-stakes way to scratch your market timing itch.

RCL
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Re: CD Ladder Discipline

Post by RCL » Sun Mar 11, 2018 7:10 pm

Recently only been buying 12 month Cds
It Is Best To Consult Others Before Taking Unusual Actions

Fan23
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Re: CD Ladder Discipline

Post by Fan23 » Sun Mar 11, 2018 7:26 pm

Same here. I doubled up on my 2- and 3-year and will buy some 4- and 5- year later, when (if) they nudge up a little more.

sport
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Re: CD Ladder Discipline

Post by sport » Sun Mar 11, 2018 8:26 pm

I am considering only 2-year or 3-year CDs now. The longer terms do not offer enough additional yield to compensate for the increased risk. This is especially true in this time of rising interest rates. Hopefully, the yield curve will change in future years to make longer CDs worthwhile. Meanwhile, I am content with 2 or 3 year CDs, even though I would like to go longer.

SrGrumpy
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Re: CD Ladder Discipline

Post by SrGrumpy » Sun Mar 11, 2018 8:27 pm

CD ladders - wish I'd never heard of them. I've got money locked up for another couple of years at ridiculous rates.

z3r0c00l
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Re: CD Ladder Discipline

Post by z3r0c00l » Sun Mar 11, 2018 8:51 pm

Went the I bond route and have never been happier, they will dynamically adjust to inflation and are mostly now 100% liquid penalty free paying almost as much as a 5 year CD. After tax it is probably even.

123
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Re: CD Ladder Discipline

Post by 123 » Sun Mar 11, 2018 10:03 pm

You always have to consider the premium you receive in a higher rate for a longer term. In the current environment I don't think I would go out more than a 2 year CD. There's always a chance that those higher rates for longer terms will go away and not come back, but I'm willing to accept that risk.
The closest helping hand is at the end of your own arm.

SpaceCowboy
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Re: CD Ladder Discipline

Post by SpaceCowboy » Sun Mar 11, 2018 10:21 pm

I focus on buying CDs at 3%+ on special. Was pleased with the recent 4% Special 64 month CD offered by Sharonview. Highest rate I’ve seen since starting to buy CDs in 2013. Right now still think CDs are compelling, but Treasuries are looking better after the recent rise in rates.

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AAA
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Re: CD Ladder Discipline

Post by AAA » Mon Mar 12, 2018 12:31 pm

z3r0c00l wrote:
Sun Mar 11, 2018 8:51 pm
...they will dynamically adjust to inflation...
Can you explain?

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AAA
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Re: CD Ladder Discipline

Post by AAA » Mon Mar 12, 2018 12:33 pm

SrGrumpy wrote:
Sun Mar 11, 2018 8:27 pm
CD ladders - wish I'd never heard of them. I've got money locked up for another couple of years at ridiculous rates.
Likewise, but maybe take some consolation in the fact that you were getting the benefit of what were, until now, higher rates.

Darth Xanadu
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Re: CD Ladder Discipline

Post by Darth Xanadu » Mon Mar 12, 2018 12:44 pm

AAA wrote:
Mon Mar 12, 2018 12:31 pm
z3r0c00l wrote:
Sun Mar 11, 2018 8:51 pm
...they will dynamically adjust to inflation...
Can you explain?
If you are not familiar with I-Bonds, it's worth doing a search on BH for previous threads about them. There is a fluctuating component to the interest rate that is adjusted twice a year, based to some extent, I believe, on inflation numbers.
"A courageous teacher, failure is."

z3r0c00l
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Re: CD Ladder Discipline

Post by z3r0c00l » Mon Mar 12, 2018 8:34 pm

Darth Xanadu wrote:
Mon Mar 12, 2018 12:44 pm
AAA wrote:
Mon Mar 12, 2018 12:31 pm
z3r0c00l wrote:
Sun Mar 11, 2018 8:51 pm
...they will dynamically adjust to inflation...
Can you explain?
If you are not familiar with I-Bonds, it's worth doing a search on BH for previous threads about them. There is a fluctuating component to the interest rate that is adjusted twice a year, based to some extent, I believe, on inflation numbers.
Basically the entire interest rate is based on inflation. They match inflation, no more, no less. This way you don't have to regret locking in at lower interest rates all the time as with CDs, or worry about NAV fluctuations as in bond funds. If inflation kicks into high gear, I bonds could easily pay 4, 5, or 6% as needed with your initial investment intact. The only issue is you can only buy a certain amount each year, and the first year there is zero liquidity.

cjg
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Re: CD Ladder Discipline

Post by cjg » Mon Mar 12, 2018 9:32 pm

Look at treasury yields on the market.

1 YR - 2.05%
2 YR - 2.27%
3 YR - 2.43%
5 YR - 2.64%
10 YR - 2.87%
20 YR - 3.00%
30 YR - 3.13%

Source

It doesn't seem like there's a lot of premium for reaching for longer rates there either. The markets don't seem to be expecting interest rates to go up to 4% anytime soon (though that doesn't mean they won't). But you also have to consider that there's no guarantee that rates will keep going up either. If there's a recession, rates might go back to near zero again. There's risk on both sides. In order for a 3-year 2.70% CD to beat a 5-year 2.85% CD, you need to have a 3.08% yield for the last 2 years. 2 year rates may be significantly lower at that point.

BogleMelon
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Re: CD Ladder Discipline

Post by BogleMelon » Mon Mar 12, 2018 9:47 pm

z3r0c00l wrote:
Mon Mar 12, 2018 8:34 pm
Darth Xanadu wrote:
Mon Mar 12, 2018 12:44 pm
AAA wrote:
Mon Mar 12, 2018 12:31 pm
z3r0c00l wrote:
Sun Mar 11, 2018 8:51 pm
...they will dynamically adjust to inflation...
Can you explain?
If you are not familiar with I-Bonds, it's worth doing a search on BH for previous threads about them. There is a fluctuating component to the interest rate that is adjusted twice a year, based to some extent, I believe, on inflation numbers.
They match inflation, no more, no less.
Actually this is not quiet accurate. They match sometimes more than inflation, for example, currently, the fixed rate is 0.10%, that is inflation+0.1% (0.1% real return) for the life of the bond.

Back in the year 2000 they were offering 3.60% fixed rate (in addition to the variable rate). Those who bought I bonds back then, are now enjoying real returns of 3.60% (current nominal rate would be 6.17%) risk free!!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

z3r0c00l
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Re: CD Ladder Discipline

Post by z3r0c00l » Mon Mar 12, 2018 10:10 pm

BogleMelon wrote:
Mon Mar 12, 2018 9:47 pm
z3r0c00l wrote:
Mon Mar 12, 2018 8:34 pm
Darth Xanadu wrote:
Mon Mar 12, 2018 12:44 pm
AAA wrote:
Mon Mar 12, 2018 12:31 pm
z3r0c00l wrote:
Sun Mar 11, 2018 8:51 pm
...they will dynamically adjust to inflation...
Can you explain?
If you are not familiar with I-Bonds, it's worth doing a search on BH for previous threads about them. There is a fluctuating component to the interest rate that is adjusted twice a year, based to some extent, I believe, on inflation numbers.
They match inflation, no more, no less.
Actually this is not quiet accurate. They match sometimes more than inflation, for example, currently, the fixed rate is 0.10%, that is inflation+0.1% (0.1% real return) for the life of the bond.

Back in the year 2000 they were offering 3.60% fixed rate (in addition to the variable rate). Those who bought I bonds back then, are now enjoying real returns of 3.60% (current nominal rate would be 6.17%) risk free!!
Well after taxes, even with the .1%, I expect it to basically match or probably slightly trail inflation. Not daring to hope for a higher fixed rate right now.

mega317
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Re: CD Ladder Discipline

Post by mega317 » Tue Mar 13, 2018 12:29 am

Also the rate can't go below 0 so they will not match inflation if it's negative.

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