From CD's to treasuries

[smjr]

I have all my fixed income {2 million} invested in a ladder of CD's. Keeping within the FDIC 250 k limit for each bank as I reinvest is a choir. I am thinking of replacing each CD as it matures with a 2 or 3 year treasury at auction and using the Schwab auto reinvest option. In a few years my entire treasury portfolio would be automatically reinvested as the treasuries mature. Because of the Calif tax exemption for treasury interest I don't think I would be losing too much income for the convenience.
Your thoughts?

[alpenglow]

I have all my fixed income {2 million} invested in a ladder of CD's. Keeping within the FDIC 250 k limit for each bank as I reinvest is a choir. I am thinking of replacing each CD as it matures with a 2 or 3 year treasury at auction and using the Schwab auto reinvest option. In a few years my entire treasury portfolio would be automatically reinvested as the treasuries mature. Because of the Calif tax exemption for treasury interest I don't think I would be losing too much income for the convenience.
Your thoughts?

Treasuries sound like a great idea, especially in a high tax state like California. Treasuries are also much more liquid in case you need to sell before maturity to rebalance, fund an emergency, etc. For even more simplicity, have you considered VGSH since you are targeting 2-3 year maturities? VGSH has only a 0.04% ER and a 2 year average maturity. I've gone for longer duration and purchased VGIT (Intermediate Term Treasury ETF) as my other fixed income investments have matured. It is already making life easier for me! Good luck.

[dbr]

If the plan is simply for keeping fixed income for the long term a Treasury ETF might make sense. Choices in duration exist from the shortest to the longest.

[LISD]

This (link below) implies that you can't auto-reinvest in Treasuries with maturities longer than 6 months (at Schwab).

However, call a Schwab fixed income specialist and ask them about this. I remember them telling me it's not limited to 6-months, even tho their website indicates it is. Confusing. Let me know what they say.

Also, know that they don't reinvest immediately, which means Schwab is keeping your money in their bank at ridiculously low rates - I find that incredibly annoying.

https://www.schwab.com/fixed-income/cd- ... y-rollover

(click on "what investments are eligible")

[Sandtrap]

I have all my fixed income {2 million} invested in a ladder of CD's. Keeping within the FDIC 250 k limit for each bank as I reinvest is a choir. I am thinking of replacing each CD as it matures with a 2 or 3 year treasury at auction and using the Schwab auto reinvest option. In a few years my entire treasury portfolio would be automatically reinvested as the treasuries mature. Because of the Calif tax exemption for treasury interest I don't think I would be losing too much income for the convenience.
Your thoughts?

Great idea.
Also consider Treasury (new issue, not funds) ladders as well.

j

[smjr]

Thank you LSDI.
You are correct. I have looked into it at Schwab in great detail. Notes and bonds are not autorollable. Bummer. I am just looking for a way to simplify things for my wife when I am gone.

[questionbox]

Might be interested to know that Fidelity does permit autorolling of 1 year T Bills, and T Notes purchased at auction along with autorolling CDs up to 5 years (presumably includes 2 yr, 3 yr and 5 yr Notes). This aspect along with the better MMF rate on money awaiting settlement of "autoroll" compared to Schwab might warrant further investigation - and reverification of my impression with Fidelity fixed income team. Would it be possible to consider autorolling 10 1 yr T Bills, at $200k per T Bill, each purchased 1 month apart at auction at Fidelity? Such a T Bill autoroll ladder should require no maintenance and one only needs to consider the ultimate default (when both FDIC and US govt falls). Buying at 1 month intervals would also enhance liquidity/access issues compared to introducing 2 year or 3 year or 5 year Note.

[hudson]

I have all my fixed income {2 million} invested in a ladder of CD's. Keeping within the FDIC 250 k limit for each bank as I reinvest is a choir. I am thinking of replacing each CD as it matures with a 2 or 3 year treasury at auction and using the Schwab auto reinvest option. In a few years my entire treasury portfolio would be automatically reinvested as the treasuries mature. Because of the Calif tax exemption for treasury interest I don't think I would be losing too much income for the convenience.
Your thoughts?

I don't like the auto reinvest.
Why? There might be better rates at a different duration.
Sometimes CDs are a better deal.
Taxes get a vote. As you know, no state taxes on treasuries.

Bottom Line: Auto = convenience
Following the yield curve = better payout

[J295]

We have treasuries at Schwab and Fidelity. Both are fine, and we acknowledge the low bank rate for a day or two at Schwab from time to time.

OP. I’m curious about your thought process for the amount you have in CD/treasuries. Please share if you are willing.

[dbr]

Thank you LSDI.
You are correct. I have looked into it at Schwab in great detail. Notes and bonds are not autorollable. Bummer. I am just looking for a way to simplify things for my wife when I am gone.

If simplicity for your wife is a high priority I think appropriate bond funds would be a better idea than trying to manage individual holdings auto-rollover or not. This is especially true if other assets are already in stock funds.

[Marbling]

I have all my fixed income {2 million} invested in a ladder of CD's. Keeping within the FDIC 250 k limit for each bank as I reinvest is a choir. I am thinking of replacing each CD as it matures with a 2 or 3 year treasury at auction and using the Schwab auto reinvest option. In a few years my entire treasury portfolio would be automatically reinvested as the treasuries mature. Because of the Calif tax exemption for treasury interest I don't think I would be losing too much income for the convenience.
Your thoughts?

Treasuries sound like a great idea, especially in a high tax state like California. Treasuries are also much more liquid in case you need to sell before maturity to rebalance, fund an emergency, etc. For even more simplicity, have you considered VGSH since you are targeting 2-3 year maturities? VGSH has only a 0.04% ER and a 2 year average maturity. I've gone for longer duration and purchased VGIT (Intermediate Term Treasury ETF) as my other fixed income investments have matured. It is already making life easier for me! Good luck.

I agree with the suggestion of VGSH and VGIT with 2 year and 5.6 average maturity as they are also my primary Treasury ETFs.

[MikeG62]

Treasury yields were generally better than CD's for the better part of the last couple of years. However, over the last 3-6 months that has changed. I now see better yield opportunities in CD's. Problem is, to stay with the government insurance coverage with $2.0 million and within individual accounts, you may need to spread your money around at over a half dozen banks.

I used to have a lot of my fixed income in CD's (prior to the pandemic). Now very little in CD's with most in Treasuries. This year I've been buying mostly US Agency debt (FHLB and FFCB).

[aristotelian]

If it is a chore, can you stay in cash or use a short term treasury index fund?

[J295]

Treasury yields were generally better than CD's for the better part of the last couple of years. However, over the last 3-6 months that has changed. I now see better yield opportunities in CD's. Problem is, to stay with the government insurance coverage with $2.0 million and within individual accounts, you may need to spread your money around at over a half dozen banks.

I used to have a lot of my fixed income in CD's (prior to the pandemic). Now very little in CD's with most in Treasuries. This year I've been buying mostly US Agency debt (FHLB and FFCB).

For those interested in CDs with aggregate amounts exceeding the insurance limits, one option is Fidelity brokered CDs (purchase from different issuers). (Also if one wanted to stay with a single local bank, you could look into the CDARS program).