I was going to comment in the "When to get back in to bond funds?" thread, but this might deserve it's own thread...
Way back when in early 2014 I remember not being happy with bond fund yields. The consensus, everywhere, was against bonds, not unlike today. At the same time, PenFed was offering a 5-year CD at 3%. I spent a lot of time reading analysis about CDs vs bond funds and a blog posting with good analysis convinced me that yes, the CDs will perform better than the bond funds. I went through the hassle of transferring funds from my IRA to PenFed to buy the CDs.
Lately I've been trying to consolidate and have been pondering if buying the CDs was really worth the extra hassle. To determine the answer is simple: run the numbers. Of course, it's only been 15 months, so the bond fund numbers can change, but I thought I would share my results.
I purchased a $30,000 CD on 2/5/2014. The value on 5/18/2015 is $31,189.21. An increase of 3.96%.
If I purchased Vanguard's Total Bond Fund (VBTLX) instead, the value on 5/18/2015 would be $31,394.97. An increase of 4.65%.
Note that I used 5/18/2015 since that's when interest is posted for the CD. After 15 months, it's a better performer than CDs.
Of course that can change. We'll see. If there's interest (pun time!), I can periodically update the thread and we can see how this progresses over 5 years.
I will say that for my situation I would rather own the bond fund than the CDs. Not enough to break the CDs - that would be silly - but in 45 months I expect I'll be transferring the funds away from PenFed.
[Edited to remove bond dividend accrual reference]
Way back when in early 2014 I remember not being happy with bond fund yields. The consensus, everywhere, was against bonds, not unlike today. At the same time, PenFed was offering a 5-year CD at 3%. I spent a lot of time reading analysis about CDs vs bond funds and a blog posting with good analysis convinced me that yes, the CDs will perform better than the bond funds. I went through the hassle of transferring funds from my IRA to PenFed to buy the CDs.
Lately I've been trying to consolidate and have been pondering if buying the CDs was really worth the extra hassle. To determine the answer is simple: run the numbers. Of course, it's only been 15 months, so the bond fund numbers can change, but I thought I would share my results.
I purchased a $30,000 CD on 2/5/2014. The value on 5/18/2015 is $31,189.21. An increase of 3.96%.
If I purchased Vanguard's Total Bond Fund (VBTLX) instead, the value on 5/18/2015 would be $31,394.97. An increase of 4.65%.
Note that I used 5/18/2015 since that's when interest is posted for the CD. After 15 months, it's a better performer than CDs.
Of course that can change. We'll see. If there's interest (pun time!), I can periodically update the thread and we can see how this progresses over 5 years.
I will say that for my situation I would rather own the bond fund than the CDs. Not enough to break the CDs - that would be silly - but in 45 months I expect I'll be transferring the funds away from PenFed.
[Edited to remove bond dividend accrual reference]
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