Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Bonds or CDs?
Old 06-29-2005, 08:12 PM   #21
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Bonds or CDs?

Quote:
Originally Posted by OldAgePensioner
Ha and Ha,
Thanks for that clarification, it shows very well how charts are info with need for further info.

So, are bonds worth buying and why? *Seems to me they can't match a CD for safety and return.

Notth pointed out his move to CDs and I feel like minded. *What advice says otherwise?
I too am "like minded". Guess it's one of those rare times when th and I
agree on something

JG
__________________

__________________
MRGALT2U is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Bonds or CDs?
Old 06-29-2005, 08:16 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Bonds or CDs?

Quote:
Originally Posted by OldAgePensioner

My big question is why buy a 5% yielding, non-protected bond when you could by a FDIC protected 5 year CD that pays the same 5%.
Why indeed? And the same reasoning also applies to other similar
yielding investments.

JG
__________________

__________________
MRGALT2U is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-29-2005, 08:24 PM   #23
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Re: Bonds or CDs?

CD's are certainly an alternative for bonds. Non-marketable CD's, like some you can buy directly from your local credit union, cannot fluctuate in value b/c you cannot resell them. There are some brokered CD's that can certainly be resold, and thus fluctuate in value.

The good news is that some CD's cannot lose value, when interest rates rise. The bad news is that some CD's cannot gain value, when interest rates fall.

While a rise in interest rates will cause bonds to decline in value, the long term bond investor is actually better off if interest rates rise b/c he/she can reinvest all those coupon payments at higher interest rates, and thus get a higher return.

CD's usually cost nothing to buy from your local CU. Bonds have expenses [sometimes high expenses if individual muni or corporate bonds]. Some bonds are free, like buying Treasury bonds directly from the Treasury. Those people in a high tax bracket usually favor muni bonds, and muni bond funds, b/c the after tax return on those bonds is higher than fully taxable bonds and CD's.

Bond funds also usually pay dividends monthly [Vanguard's do], while most CD's don't. Though this isn't really a problem is one is laddering CD's, and has a cash reserve.

Also, for long term liabilities, shorter term bonds/CD's are not risk free because an investor must roll over the coupon payments at future unknown interest rates of future shorter term bonds/CD's. For nominal long term liabilities, nominal long term bonds are less risky than short term bonds/CD's. Thus, insurance companies with long term nominal liabilities use mostly long term bonds. Interest rate fluctuations affect both assets and liabilites.

For those of us with real long term liabilities, TIPS are the risk free assets, not short term bonds/CD's. For money needed in five years, a 5yr CD would probably be more risk free than a 1 yr CD.

If you're comparing a 5 yr CD with a 5 yr corp bond or a 5 yr treas, a lot of the time a 5 yr CD with be more attractive b/c it is easy, fairly cheap, simple, and currently the differences [e.g. spreads] between the yields on CD and corporate bonds, treasuries, is large enough to favor CD's over other fixed income.

Now I'm not saying that bonds are better than CD's. They are just different. CD's are simple, easy, and a good alternative.

- Alec
__________________
ats5g is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-29-2005, 08:33 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Bonds or CDs?

Alec,
I appreciate that insight. I'm new here and asking questions to learn. Your advice is truly appreciated. Good food for thought.

Moving from accumulate to withdrawal is tough. Good to have found this board.

Galt,
I'm a recent retiree and you, charlie, um2, notth, nords, and several others have me thinking get safe, get frugal, get simple. So, my questions here are about doing just that.

If I could just get Ben and Lancelot to set me up in BKK, I could quit worrying.
__________________
OldAgePensioner is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-29-2005, 10:10 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Re: Bonds or CDs?

Quote:
Originally Posted by OldAgePensioner
So, are bonds worth buying and why? *Seems to me they can't match a CD for safety and return.
I think when Cds offer comparable yields, they dominate bonds. Especially for an unsophisticated holder.

BTW, why do you need Ben and Lance to go to Thailand? Don't you have a Thai GF? Haven't you lived all over the world?
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-29-2005, 11:58 PM   #26
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: Bonds or CDs?

Quote:
Originally Posted by ats5g
If you're comparing a 5 yr CD with a 5 yr corp bond or a 5 yr treas, a lot of the time a 5 yr CD with be more attractive b/c it is easy, fairly cheap, simple, and currently the differences [e.g. spreads] between the yields on CD and corporate bonds, treasuries, is large enough to favor CD's over other fixed income.
Remember 10-15 years ago when we wouldn't even waste the time to spit on a 5% CD?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 05:18 AM   #27
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Bonds or CDs?

HaHa,
Thai GF will help with the language but having a couple of English speaking expats who know the ropes in a big plus.

And having CD's laddered here in the US would mean not having to monitor bond fluctuations. Retire@40 pointed out that 1 year CDs at 4 percent are very attractive. So if I put $500k in those CDs and generated $20k per year, I could live in Thailand very well and have enought to buy cheap beer for Ben and Lancelot.
__________________
OldAgePensioner is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 07:48 AM   #28
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Bonds or CDs?

Quote:
Originally Posted by OldAgePensioner

Galt,
I'm a recent retiree and you, charlie, um2, notth, nords, and several others have me thinking get safe, get frugal, get simple.* So, my questions here are about doing just that.

If I could just get Ben and Lancelot to set me up in BKK, I could quit worrying.
"Get safe, get frugal, get simple." I like it!

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 07:55 AM   #29
Thinks s/he gets paid by the post
Eagle43's Avatar
 
Join Date: Jan 2005
Location: DFW
Posts: 1,882
Re: Bonds or CDs?

Yeah, that should be the ER motto.
__________________
Resist much. Obey Little. . . . Ed Abbey

Disclaimer: My Posts are for my amusement only.
Eagle43 is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 07:59 AM   #30
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Bonds or CDs?

Quote:
Originally Posted by Eagle43
Yeah, that should be the ER motto.
My thought too, but I would hate to change the flag. Took me a long time to come up with that. Wonder what "Get safe, get frugal, get simple"
looks like in Latin?

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 08:22 AM   #31
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: Bonds or CDs?

Quote:
Originally Posted by OldAgePensioner
...So if I put $500k in those CDs and generated $20k per year, I could live in Thailand very well...
What is inflation like in Thailand? If it's 3% to 4% like here, you may need more than $500K and/or a higher total return.
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 08:36 AM   #32
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Bonds or CDs?

retire@40,
Good question, I'm looking into that today. But, I'd have my portfolio appreciating ( I hope ) and not touch it for the next 5 years. ( $700k in tax-deffered, $900k taxable).

By the way, anybody want of copy of a calculator that allows you to vary interest rates, inflation rates, return rates, taxation rates and vary income withdrawals, PM me and I'll email it.

It really reveals what bear vs bull, high inflation, etc does to a portfolio.


"Get safe, get frugal, get simple" -- MRGALT2U (2005)
__________________
OldAgePensioner is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 11:41 AM   #33
Recycles dryer sheets
 
Join Date: Jul 2002
Posts: 420
Re: Bonds or CDs?

I have not looked up the official nos - but my real life experience is that 20k would be fine 10 years ago (when I first lived in Thailand) and is fine today. The next 10 year might be different!
__________________
preben is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 12:38 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Bonds or CDs?

Quote:
Originally Posted by ats5g
If you're comparing a 5 yr CD with a 5 yr corp bond or a 5 yr treas, a lot of the time a 5 yr CD with be more attractive b/c it is easy, fairly cheap, simple, and currently the differences [e.g. spreads] between the yields on CD and corporate bonds, treasuries, is large enough to favor CD's over other fixed income.

Now I'm not saying that bonds are better than CD's. They are just different. CD's are simple, easy, and a good alternative.
Ding ding ding...we have a winner! Right now I dont see a bond other than HY corps paying a better rate, I can always bail out of the CD if things change, and I have no faith in CPI holding at the current rates, and hence underpinning that higher ibond rate. In fact, I think the reason why long term rates arent going up is because they arent going to go much higher, will drop within 3 years, and inflation will go along with it. Real or CPI version. I think occams razor has the answer here.

OAP - Havent ever heard bad info or bad advice from Alec, he's done a nice job of filling in the better parts of my spartan description.

Ha Ha: "Especially for an unsophisticated holder."

You callin' me unsufffisiticated? If I durn knew what that there meant you might be in some trubble!
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 02:09 PM   #35
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Bonds or CDs?

Notth,
I posted on other threads that I am reducing from very heavily stock/fund portfolio but for the life of me, bonds don't fit me.

In Bernstein's Four Pillars there is a chart showing $1 invested in stocks, bonds and cash equivs. You can't even make out the bond or cash lines. You have to plot a log scale to see them.

I remember a post from last week or two saying you were going CD's and now I'm thinking a 1, 2,3,4,5 ladder just to grabs these current rates. Buy more if rates increase and in 5 years look at bonds maybe.

I think MRGALT2U's post "Get safe, get frugal, get laid" appeals to me.
__________________
OldAgePensioner is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 03:29 PM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Bonds or CDs?

Makes some sense. Note that many evaluations of historic returns, including bernsteins, show that 100% equity allocations increase volatility without increasing returns; a 20% bit of fixed income, specificially short bonds, smooths out the volatility without decreasing returns. Same for 100% bond ports; reduced returns without reduced volatility vs a 20/80 portfolio.

I wanna know how John feels safe with well under $500k in assets, $100k in credit card debt and putting most or all of his money into junk bonds. Maybe its the working wife paying the bills that helps
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 03:58 PM   #37
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Bonds or CDs?

I've got a lot of work to do creating a good portfolio. But I need to decide on how to allocate first. I'm thinking 10% Cash, 20% CDs and 70%stock/fund.

And with equal sized taxable and tax-exempt portfolios, go heavy growth in the exempt, and go 50% US and 50% intl. but still with growth in mind.

I want need income for a couple of years.
__________________
OldAgePensioner is offline   Reply With Quote
Re: Bonds or CDs?
Old 06-30-2005, 07:41 PM   #38
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Re: Bonds or CDs?

Quote:
Originally Posted by Notth
Ding ding ding...we have a winner! Right now I dont see a bond other than HY corps paying a better rate, I can always bail out of the CD if things change, and I have no faith in CPI holding at the current rates, and hence underpinning that higher ibond rate. In fact, I think the reason why long term rates arent going up is because they arent going to go much higher, will drop within 3 years, and inflation will go along with it. Real or CPI version. I think occams razor has the answer here.

OAP - Havent ever heard bad info or bad advice from Alec, he's done a nice job of filling in the better parts of my spartan description.

Ha Ha: "Especially for an unsophisticated holder."

You callin' me unsufffisiticated? If I durn knew what that there meant you might be in some trubble!
On HY bonds: I think that HY bonds in a taxable account is a very tax inefficient way to get equity exposure. IMO if you're 60% equities, 30% bonds, and 10% HY bonds, you're actually more like 65% equities, 35% bonds. I've also seen the arguments that adding HY makes a portfolio more efficient. However, all the arguments I've seen only consider HY + bonds or HY + equities. I've really not seen a good study showing how adding HY to an existing portfolio of Equities and Bonds makes the portfolio more existing. That M* conversation from the "pimp my ride" conversation kind of shows that. [my own little mvo shows that as well - though it only uses data back to 1984 ]

I don't really have an opinion about whether or not HY bonds are a "good buy" or not now, but I'd just consider them part equity and part bonds, and not particularly tax efficient.

- Alec
__________________

__________________
ats5g is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Short Term vs. Intermd Term Bonds TromboneAl FIRE and Money 35 07-21-2006 08:58 AM
Put some spending cash in CDs or in I bonds? Nords FIRE and Money 60 03-15-2005 05:37 AM
About those five-year CD ladders-- I bonds? Nords FIRE and Money 6 07-05-2004 02:37 PM
Bond's vs CD's Roger_R FIRE and Money 10 02-26-2004 12:09 PM
The Scoop on High Yield Bonds Ted FIRE and Money 9 12-04-2003 01:03 PM

 

 
All times are GMT -6. The time now is 02:45 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.