CDs?

[medved]

I am moving toward a 50/50 overall allocation. I had been more in equities, but am slowly gliding toward 50/50 as I approach retirement (I am mid 50s; will work another two years or so -- by choice, though -- I could retire now). I am nearly at 55/45 or so now. I have been keeping maturities pretty short on the fixed income side (other than a TIPS ladder), because of low interest rates over the past few years that seem like they can only head one direction. The result is my fixed income returns (short term; high credit quality) have been pretty pathetic. Of course, I am not chasing returns on this side of the portfolio -- the main goal is capital preservation -- but still would be nice to get something. Recently, I moved 20% of what I have on the fixed income side (so, about 10% of my overall investable assets) into CDs - ranging from 9 months to 30 months. Seems like the returns are likely to be as good or better, and with zero risk.

Do any of you use CDs as part of your fixed income investments? How do you think about the use of CDs compared to bonds of comparable duration?

 

[audreyh1]

Yes, I always compare CD yields to bond funds of comparable duration. Also compare treasuries. This is mostly on the short duration stuff.

 

[pb4uski]

I had never owned a CD in my entire life until a few years ago... preferred corporate bond funds. I did buy the PenFed 3% 5 year CD at the end of 2013... at that time a 3% rate was a screaming deal.

Right now, I have a lot of money parked off the the side at 2% waiting to be redeployed into fixed income.... I'm probably going to wait a bit and see what rates do between now and year end.

 

[Dtail]

I set up a 3 year CD ladder, as a substitute for my bond fund. This represents 15% of my portfolio. Yes, the duration was longer on the bond fund. I am at 55/45, but also have 22% in a 3.84% Stable Value fund.
I am in agreement with you about rising rates, although it doesn't mean I will never go back to bond funds.

 

[REWahoo]

I'm probably going to wait a bit and see what rates do between now and year end.

You need to get over here in this long line of people doing the same.

 

[MichaelB]

Every time I see “CD” in the thread title I think of a shiny disk that’s a bit over 4” in diameter and wonder if the topic is music.

 

[Car-Guy]

Yes, lot's of CD's in bucket #1 which is enough to live on for the rest of my life. None in bucket #2 two which is for speculation/markets, entertainment, hobbies, day to day, etc, etc.

 

[pb4uski]

You need to get over here in this long line of people doing the same.

It is comforting to know that I am not the only deer in the headlights.

 

[RetireAge50]

My only fixed income is whatever Wellington or T.RowePrice holds. Maybe they buy CD’s but otherwise have never had a CD except the music kind.

 

[pletal]

I am moving toward a 50/50 overall allocation. I had been more in equities, but am slowly gliding toward 50/50 as I approach retirement (I am mid 50s; will work another two years or so -- by choice, though -- I could retire now). I am nearly at 55/45 or so now. I have been keeping maturities pretty short on the fixed income side (other than a TIPS ladder), because of low interest rates over the past few years that seem like they can only head one direction. The result is my fixed income returns (short term; high credit quality) have been pretty pathetic. Of course, I am not chasing returns on this side of the portfolio -- the main goal is capital preservation -- but still would be nice to get something. Recently, I moved 20% of what I have on the fixed income side (so, about 10% of my overall investable assets) into CDs - ranging from 9 months to 30 months. Seems like the returns are likely to be as good or better, and with zero risk.

Do any of you use CDs as part of your fixed income investments? How do you think about the use of CDs compared to bonds of comparable duration?

Been doing the CD ladder for over 35 years. I have always gone long unless something is really special (great rate) Have CD's maturing every year for the next 10 years. Sometimes I look cool, sometimes the fool! Have switched some money to muni bonds for tax purposes. I like CD's compared to Bonds.

 

[njhowie]

There was an article published yesterday how the 3-month Treasury has now eclipsed the S&P dividend yield. The expectation is that more money will begin flowing out of equities and in to CDs and Treasuries as a result.

 

[OldShooter]

Lots of angles on this question.

First is nominal yield; treasuries have been yielding very close to brokered CDs and they are much more liquid.

Second is convenience; Buying brokered CDs through places like Schwab and Fido costs between negligible and zero. It saves chasing around and moving money. I do not follow in detail, but people here have reported that brokered CDs from an institution sometimes offer higher rates than the "public" rates they show their possibly-more-gullible customers.

Third is real rates; With most fixed income investments, especially the longer duration ones, you are gambling on what inflation will turn out to be. You won't know until the end what your real rate of return is. The exception is TIPS, where you get inflation-proofing at a small (IMO) cost in yield above current inflation.
​

YMMV, but we have been using t-bills for very short term needs and long TIPS for the rest. Inflation for the past 30 years has been low. IIRC around 2.6%. But the wild days of the 70s and 80s were just before that 30 year period and IIRC averaging them in gets you a number around 4%. What will it be in the future? if low, then maybe TIPS are not the best deal. If moderate or high IMO TIPS blow the other options away as a store of value. You pays your money and you takes your choice.

 

[jazz4cash]

I've been using CDs in lieu of bonds for many years. I did this due to the same concerns that OP expressed.

 

[friar1610]

I have CDs, I-Bonds and both a short- and intermediate-term bond index fund in my fixed allocation. The largest chunk is in the funds but there's a healthy amount in the other two. I figure that diversification is as good an idea for fixed as it is for equities. And each has a bit of a different spin to fixed income than the other two.

 

[harley]

Every time I see “CD” in the thread title I think of a shiny disk that’s a bit over 4” in diameter and wonder if the topic is music.

Such an old fogey. Physical media, hah!

 

[audreyh1]

Such an old fogey. Physical media, hah!

Huh? There were CDs before there were those kind of CDs.

 

[DrRoy]

No CD's, except the 4" kind. I have a money market account at Capital 360, and a bond ladder.

 

[ShokWaveRider]

Been retired for almost 10 years, 65/60 respectively. All CD or Fixed income no equities.... works for our lifestyle with enough "Dough to Blow"

 

[street]

Every time I see “CD” in the thread title I think of a shiny disk that’s a bit over 4” in diameter and wonder if the topic is music.

LOL >> I like that.

I also use have a few CD's and use them to live on. My investments aren't touched that way and everything is re-invested.

 

[mrfeh]

Yes, I always compare CD yields to bond funds of comparable duration. Also compare treasuries. This is mostly on the short duration stuff.

+1

The bulk of our fixed income is TBM, with a horizon of at least 5 years before use. For fixed income needs with a horizon of < 5 years, we examine short term bond funds, CDs and I Bonds.

 

[youbet]

LOL >> I like that.

I also use have a few CD's and use them to live on. My investments aren't touched that way and everything is re-invested.

You don't consider your CD's to be part of your investments?

 

[phil1ben]

I am much more conservative than most on this board. My allocation (excluding our homes) now is 25% multi-family real estate, 25% individual stocks, 25% individual muni-bonds and 25% cash. The cash I hold is in CDs spread among far too many banks which requires me to keep track on a spreadsheet. I have generally been rolling over 12-15 month CDs which I have scheduled to mature on a laddered basis every month or two. As of now the increase in rate for more than 12-15 months is not worth it to me. Currently I am getting 2.5-2.8% on 12 month jumbo CDs.



The limitation on FDIC insurance has its issues but the law allows some elasticity by naming the accounts differently. My main goal is capital preservation so the FDIC insured CDs work for me hedging against the more speculative stock and real estate investments. I have researched CDARS accounts which allows you to put money in one bank and you can increase the FDIC cap amount because the funds are spread across different banks. However, I would rather know which banks I am dealing with.