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Old 01-18-2009, 07:52 PM   #21
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First off I want to say I'm OAG's biggest fan!

I have read a lot of his posts and it changed the way I thought about investing.

And Dawg what you posted it one of the things I thought of that peace of mind is definitely worth something!

I'm young (relatively) but I learned this already!!

Jim
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Old 01-18-2009, 07:55 PM   #22
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I currently have about 40 CD's with amounts ranging from $6,000 up to about $50,000. I probably have about $800,000 total in CD's. The rates range from about 4.35% up to 6.5%. I usually buy CD's that are no shorter than 3 years in length and will invest up to 10 years if I think the rate is really good. But in times like now where CD rates are really low, I won't buy any CD's that are longer than 12 months. In general I don't think rates stay low for very long (our current situation may prove otherwise though). The other thing is that I learned by experience and intuition what a good rate is. 10 years ago I was able to get CD's paying 8%...I condered that a good rate then. In the more recent past, I considered 5.5 - 6% to be a good interest rate. So I had to make my best guess at investment time based on current interest rates, how long I wanted to invest the money.

As far as getting a ladder going, that's probably the hardest part....but in general if I was to start a ladder from scratch, I would probably take a portion of my investment money and buy 5 CD's (1yr, 2 yr, 3 yr, 4 yr and 5 yr). In 6 months or so, I might do that again with another portion of my savings (buy 5 more CD's). So in 6 months I would have 10 CD's set up and they would be coming due every 6 months after that. When they came due, if I thought the interest rates were good, I'd re-invest them for another 5 years (or longer). If interest rates weren't good, I might reinvest them for just a year....so that if interest rates increase during the next year, I could take advantage of that a year from now. The part of re-investing is always a judgement call on my part.

NOTE: My CD investments made up about 65% of my total investments up until the recent market crash....now they make up about 75%. I know many people here worry about inflation eating away the value of CD's, but I found that if I invested more of my money in the stock market, I was a nervous wreck much of the time. For me, I need to know that if the market crashes or goes in a prolonged downturn that I can still continue with my early retirement.
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Old 01-18-2009, 08:24 PM   #23
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Of course AND so that my two fully COLA'd annuities will go up too.
?? Isn't that like hoping your boat starts sinking so you can use the bilge pump? Seems like the COLA'd pensions and the higher CD rates would only help keep pace with inflation, not make any real money because of it. Plus, with the COLA'd stuff, we have to hope that the government calculations are not "cooked" and that the inflation rate for the things in their shopping basket is at least as high as for what we are buying.
I would have guessed you'd like the inflation numbers to stay moderate and the economy to stay humming so that banks need to entice people like yourself to give them money to lend out.
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Old 01-19-2009, 07:21 AM   #24
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Although I have most of my IRA in VG Wellington, I'm trying to get a taxable account going and am considering putting all of it in CDs because the volatility of the stock market has really taken a toll on me emotionally and financially. I don't want to take a chance with the market crashing again in 10 years and losing all gains, like the past 10 years. My question is: I like the security of CDs despite the modest returns and I'm wondering if anyone has accumulated a sizeable portfolio ($1 million+) by just investing with CDs over the course of their lives? Thanks.
Why not consider Fixed Deferred Annunities that are paying ~5,0% for 5 yr. contract? You can ladder these as well (3-5-7 yr contracts if you desire)

No taxes to pay and you can, if needed, withdraw up to 10%/yr w.o penalty. It's not FDIC protected but there are lots of highly rated firms.

I'm a very conservative investor but Fixed deferred annuities have served me well over the years
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Old 01-19-2009, 07:37 AM   #25
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?? Isn't that like hoping your boat starts sinking so you can use the bilge pump? Seems like the COLA'd pensions and the higher CD rates would only help keep pace with inflation, not make any real money because of it. Plus, with the COLA'd stuff, we have to hope that the government calculations are not "cooked" and that the inflation rate for the things in their shopping basket is at least as high as for what we are buying.
I would have guessed you'd like the inflation numbers to stay moderate and the economy to stay humming so that banks need to entice people like yourself to give them money to lend out.
Maybe, but what I hope has NO impact on what it is going to do, does it? However, I have seen my Army Retired pay triple in value (not real dollars) over the past almost 30 years (anniversary is Jul 1, 2009) also have watched SS increase in value (although I have just now started taking benefits). Over the past 30 years Inflation (CPI, cooked or raw) has been 3.1%. Also you may have missed the part where my age is 68 - so I AM on the last lap - and inflation becomes less of a concern as one ages, at least in my mind.

The thing that I think is holding interest rates down (and hurting the Stock Market) is the fact that Banks are not lending and consumers are not borrowing and spending; which impacts the demand for new money. Is that bad or good? I am not sure which it may be. I do know I have NEVER seen this situation occur over the past 50 years that I have been watching, at least to the extent it is now. Some would say we have "pent up demand" and all will be fine shortly and all we have to do is hang on (short of suicide I do not see any other real choice). Hopefully, this is true and will happen sooner versus later. I did not intend to imply by my comment on inflation that I wanted the country or its citizenry to be negatively impacted by it.
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Old 01-19-2009, 10:10 AM   #26
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When I started saving in a systematic way I decided to split our monthly invenstments into 1/3 stocks or funds and 2/3 government or other secured bonds.
By this basic split I would limit our losses to a tolerable volume even in the worst case.
It also fits to my buy and hold mentality.
We still sleep well.
In total we do not have one million, but we are fine with a paid off house and 2 pensions on the way.
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Old 01-19-2009, 10:21 AM   #27
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Why not consider Fixed Deferred Annunities that are paying ~5,0% for 5 yr. contract? You can ladder these as well (3-5-7 yr contracts if you desire)
As much as annuities are bashed here in general (usually for good reason because we're talking about high fee products sold by folks who don't care that they aren't appropriate for their clients), some of these types of fixed annuities aren't a bad option at all for a portion of one's conservative retirement savings. That's especially true for people who already max out all other available retirement plans and want more tax deferral, assuming you're using a product with good rates, financial stability and no fees. The primary concern, of course, is the lack of FDIC-type insurance for them, so it's critical to use a rock-solid insurer.

Someone with $20K or more can get 5.00% for five years and 5.50% for ten years at USAA right now, tax deferred, assuming they are eligible (with slightly higher yields for amounts over $100,000). Some long (insured) CDs in an IRA would likely be a better option, assuming one can find competitive yields.
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Old 01-19-2009, 10:37 AM   #28
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I got to $1 million (just barely) with hardly any equities. As Bogle says, the most important thing is how much you save, not where you put it.

My company's thrift/401k plan didn't offer an equity option of any type until 1994. At that point, I thought that P/E ratios were too high to justify stocks, so I stayed in the fixed account. I was always concerned about inflation. I moved the taxable money into I-bonds when I could, and the tax deferred into TIPS when I could.

We've have had a little in a CD ladder. One catch is that the best rates are often on the "odd" maturities. The 25 month CD will be a lot better than the 24 month. That makes it a little more awkward to build the perfect ladder when x% always rolls over in March and September (or whatever months you choose).
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Old 01-19-2009, 11:21 AM   #29
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CD's won't MAKE you rich, they will KEEP you rich for a couple years.......
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Old 01-19-2009, 12:32 PM   #30
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CD's won't MAKE you rich, they will KEEP you rich for a couple years.......
The thing to keep in mind about CDs is that you lend your money to a bank, which which pays you an interest rate which allows the bank to lend to someone else who pays an interest rate which allows them to pursue some business activity which enables them to make a profit.

So the CD holder's role is the base, and the safest. But if it were also the most remunerative over time capitalism would disapper.

Ha
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Old 01-19-2009, 03:32 PM   #31
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As much as annuities are bashed here in general (usually for good reason because we're talking about "highproducts sold by folks who don't care that they aren't appropriate for their clients), some of these types of fixed annuities aren't a bad option at all for a portion of one's conservative retirement savings. That's especially true for people who already max out all other available retirement plans and want more tax deferral, assuming you're using a product with good rates, financial stability and no fees. The primary concern, of course, is the lack of FDIC-type insurance for them, so it's critical to use a rock-solid insurer.

Someone with $20K or more can get 5.00% for five years and 5.50% for ten years at USAA right now, tax deferred, assuming they are eligible (with slightly higher yields for amounts over $100,000). Some long (insured) CDs in an IRA would likely be a better option, assuming one can find competitive yields.
I'm not sure what "high fees" you're speaking of. My Fixed deferred annunities are locked in a 5.3 % with no other fees that I'm aware of (other than early withdrawal fees you have also under CDs). Midland National is offering 5.2% on fixed annunities (5 yr contract). The 5-yr CD in see are not paying as well & they're taxable annually)

The OP expressed a desire not to again lose $$ over the next 10 years like he has experienced and was asking about CDs. CDs are taxable each year whereas Fixed deferred annunity contracts are not. No, they're not FDIC insured, but neither are equities/hedge funds and the like.

Staying in equities/Index Funds/ETFs/etc. hoping for a 8-10% return over the next 10 yrs. is an obvious option but it's not FDIC insured nor does anyone know how long the current recession is going to end or how long to the next crisis (financial or otherwise).

And I agree with Independent's post..."As Bogle says, the most important thing is how much you save, not where you put it."
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Old 01-19-2009, 04:03 PM   #32
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I'm not sure what "high fees" you're speaking of. My Fixed deferred annunities are locked in a 5.3 % with no other fees that I'm aware of (other than early withdrawal fees you have also under CDs). Midland National is offering 5.2% on fixed annunities (5 yr contract). The 5-yr CD in see are not paying as well & they're taxable annually)
I'm talking about the kind of fees that come with annuities pushed by salescritters that come with high commissions. The good news is that there are a growing number of these fixed annuities available now -- but there aren't any sales fees so you won't hear insurance salespeople pushing them.
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Old 01-19-2009, 06:50 PM   #33
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CD's won't MAKE you rich, they will KEEP you rich for a couple years.......
And stocks can make you less than rich in a couple of months or less.
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Old 01-19-2009, 07:21 PM   #34
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Dawg54

That is hilarious!

I started a 401k last year and I lost about 40% of my money that I worked so hard to earn...by investing it in a retirement fund that is mostly stocks.

Jim
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Old 01-19-2009, 07:33 PM   #35
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Dawg54

That is hilarious!

I started a 401k last year and I lost about 40% of my money that I worked so hard to earn...by investing it in a retirement fund that is mostly stocks.

Jim
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Old 01-19-2009, 07:57 PM   #36
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Well - at age 65 I suppose CD's are one way help one sleep/ avoid over medication heh heh heh but you know me - just gotta say it:

Pssst - Wellesley! SEC yield about 5.43% as of Friday on the Vanguard website.

heh heh heh - Having seen a few minor market fluctuations since 1966 including the latest little unpleasantness The Norwegian Widow keeps her SEC yield at 3% or better even in good times. You know like those plastic D Fense signs they have in the stands. Sooo - Steelers or Cardinals? Hmmmm ?
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Old 01-19-2009, 08:31 PM   #37
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Interesting reading as I am strictly a CD investor. Got hurt a couple times in the market and vowed never to return. Also, too old now and out of the earning stream. I could never replace lost money in the market so I stay away. Ref CD's--when I'm shopping for a CD I always see these offers from obscure institutions such as Miliminum Bank and other "off shore" banks. Is anyone familiar with these guys?
Most of those say "FDIC insured" but I'm not convinced. I'm way too conservative to just buy into that stuff.
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Old 01-19-2009, 09:21 PM   #38
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I'm talking about the kind of fees that come with annuities pushed by salescritters that come with high commissions. The good news is that there are a growing number of these fixed annuities available now -- but there aren't any sales fees so you won't hear insurance salespeople pushing them.
That's hardly a reason to "bash" fixed annunities when there a so many good insurers to pick from. There's lots of scumbags/salescritters out there pushing equities of one kind or another but that's no reason to steer people away from them. Lots of folks bash one investment or another "usually for good reason" but too often it's more out of a bad personal experience rather than sound investment principles.
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Old 01-19-2009, 09:28 PM   #39
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That's hardly a reason to "bash" fixed annunities when there a so many good insurers to pick from.
Do you normally try to argue with people who are agreeing with you?

I'll try this one more time.

The *perception* of annuities is that they are inefficient, have high fees (and corresponding commissions), and are aggressively sold to people for whom they aren't too appropriate. And for a long time, that was mostly true. Old perceptions die hard.

I was trying to build on your example to show that these perceptions don't NEED to be reality, and yet you keep responding as if I'm perpetuating that perception. I'm agreeing that it doesn't have to be reality with a good fixed annuity purchased for the right financial circumstances, and you don't seem to get that. I'm just saying that some kinds of annuities are definitely worth looking at for the right people, and that some people might want to look past their preconceived notions.

Color me puzzled and confused. I thought my point was blatantly obvious.
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Old 01-19-2009, 09:42 PM   #40
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Do you normally try to argue with people who are agreeing with you?
! I was thinking the same thing.
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