CDs: Ladder or Not?

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Topic Author
Van
Posts: 1006
Joined: Wed Oct 27, 2010 9:24 am

CDs: Ladder or Not?

Post by Van »

With interest rates on CDs (and especially Treasuries) inverted (longer term at lower yield than shorter term), does it make sense to do a ladder or should I just look for the sweet spot?

If rates go down in the next few years, I'll wish I had stayed with my 3 year ladder. But if rates go up, I'll be glad I just went with the shorter higher yielding sweet spot? I'm having trouble making a decision. Any thoughts?
Activesloth
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Re: CDs: Ladder or Not?

Post by Activesloth »

For my bond allocation, I placed half in short term treasuries earning 5% and half in 5 year brokered CDs earning 4.9%. Not really a barbell strategy, but sort of. If rates rise, I can re-invest the treasuries at higher rates. If rates drop, I can keep the CDs or sell them at a higher price. I don’t really know if this makes sense, but it’s what I did.
Last edited by Activesloth on Mon Mar 20, 2023 3:30 pm, edited 1 time in total.
Topic Author
Van
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Re: CDs: Ladder or Not?

Post by Van »

Activesloth wrote: Mon Mar 20, 2023 3:00 pm For my bond allocation, I placed half in short term treasuries earning 5% and half in 5 year brokered CDs earning 4.9%. Not really a barbell strategy, but sort of. If rates rise, I can re-invest the treasuries at higher rates. If rates drop, I can keep the CDs or sell them at a higher price. I don’t really if this makes sense, but it’s what I did.
Interesting strategy that make senses to me.
mega317
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Re: CDs: Ladder or Not?

Post by mega317 »

Van wrote: Mon Mar 20, 2023 1:25 pm If rates go down in the next few years, I'll wish I had stayed with my 3 year ladder. But if rates go up, I'll be glad I just went with the shorter higher yielding sweet spot?
Well yeah this is the bond investor's conundrum. Since you can't predict interest rates it's better to just invest according to your horizon.

So what is this money for?
Topic Author
Van
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Joined: Wed Oct 27, 2010 9:24 am

Re: CDs: Ladder or Not?

Post by Van »

Thanks mega317.

The money is just part of my allocation to bonds.

What do you mean by according to your horizon? Since the money is not designated for any upcoming event, perhaps my horizon is infinity, but I probably won't live quite that long.
UpperNwGuy
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Re: CDs: Ladder or Not?

Post by UpperNwGuy »

Van wrote: Tue Mar 21, 2023 5:44 am Thanks mega317.

The money is just part of my allocation to bonds.

What do you mean by according to your horizon? Since the money is not designated for any upcoming event, perhaps my horizon is infinity, but I probably won't live quite that long.
If this money is part of the bond portion of your retirement portfolio, I would not buy CDs. Instead I would buy an intermediate bond mutual fund or ETF (either TIPS or nominal).
drdrgolf
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Re: CDs: Ladder or Not?

Post by drdrgolf »

Just my $.02 worth. Instead of bond allocation we should think Fixed Income and as such all the above are in play. Depends on your requirements. CD's, Treasuries, bond funds, cash to name a few.
However, you should have an asset allocation for your portfolio development.
Dominic :moneybag
Dominic
Topic Author
Van
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Re: CDs: Ladder or Not?

Post by Van »

I was ok with my CD ladder when I was rolling over a maturing one year CD for a higher yielding 3 year CD, and the prior 3 year became the new 2 year and the prior 2 year became the new 1 year. However, it is a little "painful" to be rolling over into a lower yielding longer duration CD. Do you feel and share my pain?
Tom_T
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Re: CDs: Ladder or Not?

Post by Tom_T »

Van wrote: Tue Mar 21, 2023 4:17 pm I was ok with my CD ladder when I was rolling over a maturing one year CD for a higher yielding 3 year CD, and the prior 3 year became the new 2 year and the prior 2 year became the new 1 year. However, it is a little "painful" to be rolling over into a lower yielding longer duration CD. Do you feel and share my pain?
That is life on the inverted yield curve. :)
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