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Old 05-29-2013, 04:56 PM   #21
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Going against the grain here. I don't think CDs are a good strategy. Even at 1.4%, that'll not even keep up with inflation hovering around 1.5%. Being too conservative can be a bad strategy too.

I'd recommend a solid, relatively stable, large company dividend-paying ETF. Consumer Reports (June, 2013) recommended VYM (YTD 11.73%), and this might be a good place to park a large amount of cash in the current environment of minuscule bank interest rates.

But yes, a bit of a higher risk here and it depends on your tolerance and immediate need to access your cash. But for me well worth it.
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Old 05-30-2013, 02:32 AM   #22
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It's true that current CD rates are deplorable. But if you choose to continue laddering CDs into the future, one thing you might do is go for CDs with shorter penalty periods (90 or 180 days). That way, if rates go up significantly, you can dump your old CD at a relatively small loss of interest and move into a better CD rate. The math isn't too complicated to see what the break-even point is.

As a conservative investor myself, I too wish there were ways to make a decent return on CDs/cash savings. Since there really isn't, you either have to take more risk or just bump along, looking for "specials" or playing some bank's silly game (2% checking accounts with $40K minimums or similar.) In any case, this is a period when you will (if you are lucky) just about keep up with inflation. If you can live with that, just go for it. If that will either delay your ER plans (or crimp your current ER) you may have to educate yourself about the riskier investments. No easy answers here. The good news is that (officially) right now, inflation is under control. I seriously doubt that (from personal experience, but then again, why would the gummint lie to us)

All to say you pay your money and make your choice. Right now, choices are limited. YMMV as always.
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Old 05-30-2013, 08:29 AM   #23
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I'm thinking that if I have a IRA CD at a bank for $250K and also have another CD for $50K each account would be covered. Am I wrong?
You are correct in this example because the IRA and the other personal non-IRA CD are considered different registrations. In the other example in this thread a personal non-IRA CD and a checking account would be considered the same registration if titled the same way. Use the FDIC calculator suggested previously to be convinced.
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Old 05-31-2013, 06:35 AM   #24
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my main objective is to keep up with inflation, while a profit would be nice. I would not be hurt by a couple years at low rates but this is getting tiresome.
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Old 05-31-2013, 12:02 PM   #25
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It's true that current CD rates are deplorable. But if you choose to continue laddering CDs into the future, one thing you might do is go for CDs with shorter penalty periods (90 or 180 days). That way, if rates go up significantly, you can dump your old CD at a relatively small loss of interest and move into a better CD rate. The math isn't too complicated to see what the break-even point is.
FWIW Ally Bank has only a 60 day early wd penalty on their high-yield 5 year CDs.

I opened up 5 of them several months ago with the idea that if I need any of the money early I can break one or two of them and only pay the small penalty for the ones broken. Also Ally has no minimums for the CDs.

-gauss
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Old 06-03-2013, 08:01 PM   #26
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I would agree with this. However, I am one of the most conservative investors here. Hard to change habits.
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Frank, I would seriously heed to the advise of the above. Any time these words are coming from you;"forced into the market" and "no experience",I would be very hesitant to change course. Until you have a total well rounded investment strategy/plan with an understanding of what you are trying to accomplish.
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Old 06-09-2013, 07:56 AM   #27
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+1 for staying with CD's. We are 100% CD's and have been for about 35 years now (always long term ladders). Even low interest long term (7 year) CD's will preserve principal (yes, there may even be a period when the official inflation rate will exceed interest rates (has happened before (1979-1981 or so)). What many seem to not consider in advising someone to go to the Stock Market are three factors: Age, Pensions and SS Benefits. If one is older, has a pension and adequate SS benefits to pay routine living expenses there is no (IMO) benefit to head to the Stock Market.
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Old 06-09-2013, 08:31 AM   #28
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I am so pleased to see I am not the only very conservative investor here :-) We are in the minority, but FIRE is still possible while being very conservative as long as we live below our means. Some here are very vocal against this opinion. Be prepared :-)

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+1 for staying with CD's. We are 100% CD's and have been for about 35 years now (always long term ladders). Even low interest long term (7 year) CD's will preserve principal (yes, there may even be a period when the official inflation rate will exceed interest rates (has happened before (1979-1981 or so)). What many seem to not consider in advising someone to go to the Stock Market are three factors: Age, Pensions and SS Benefits. If one is older, has a pension and adequate SS benefits to pay routine living expenses there is no (IMO) benefit to head to the Stock Market.
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Old 06-09-2013, 08:57 AM   #29
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a CD alternative from a recent thread on this ER site:
ETFs | Guggenheim Investments

YTM/YTworst are somewhat higher than CDs in the 3-7 yr period.
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Old 06-09-2013, 09:32 AM   #30
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a CD alternative from a recent thread on this ER site:
ETFs | Guggenheim Investments

YTM/YTworst are somewhat higher than CDs in the 3-7 yr period.
I have transitioned some of my fixed income allocation to these. I wanted to do CDs in my IRA but didn't like the hassles of having IRAs with different banks to stay under the FDIC limits. Besides, now my IRA is all with Vanguard so it is convenient. I considered brokerage CDs from Vanguard but their yields were very low (~1.2%).

For me, the Bulletshares were a good substitute for a CD but you need to be aware that they are different from CDs in may respect. Unlike CDs that are FDIC insured, they have credit risk and some of the bonds in the underlying portfolio could default. Also, their NAV and fair value will vary with interest rates, however it would be expected that the value would converge to the aggregate par value in the maturity year. Finally, distributions are regular, but are more volatile than a CD.

For me, I think they will work well, but depending on your objectives they may not. YMMV.
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Old 06-11-2013, 10:47 PM   #31
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Anything decent in fixed income will get you a NEGATIVE real return. SEC yields: 5yrTbill = 1.13%. 5yrCD = 1.60%. BND = 1.68%. PTTAX = 2.09%.

You'd better buy and hold some equities. I suggest a MINIMUM of 40%.
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Old 06-11-2013, 11:11 PM   #32
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I'd recommend a solid, relatively stable, large company dividend-paying ETF. Consumer Reports (June, 2013) recommended VYM (YTD 11.73%), and this might be a good place to park a large amount of cash in the current environment of minuscule bank interest rates.
I wouldn't consider VYM (Vanguard High Yield Dividend ETF) stable. If you plot it's performance over the past couple years it's basically the same as the S&P 500 index.
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Old 06-12-2013, 08:22 AM   #33
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I wouldn't consider VYM (Vanguard High Yield Dividend ETF) stable. If you plot it's performance over the past couple years it's basically the same as the S&P 500 index.
+1 Some people seem to view this as a bond substitute which is a big mistake IMO. Good stock - good yield and track record - but still a stock with significant volatility and not anywhere near being cd like.
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Old 06-12-2013, 10:16 AM   #34
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For me, the Bulletshares were a good substitute for a CD but you need to be aware that they are different from CDs in may respect. Unlike CDs that are FDIC insured, they have credit risk and some of the bonds in the underlying portfolio could default. Also, their NAV and fair value will vary with interest rates, however it would be expected that the value would converge to the aggregate par value in the maturity year. Finally, distributions are regular, but are more volatile than a CD.

For me, I think they will work well, but depending on your objectives they may not. YMMV.
I am skeptical that these will react like an individual bond when it comes to interest rate risk; do you believe there is only credit/default risk with these bulletshares.
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Old 06-12-2013, 11:38 AM   #35
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Why wouldn't it? It is nothing more than a pass-through of a bond portfolio at the end of the day. From any given point in time the aggregate distributions to the ETF holder would be the same as the aggregate cash flows from the bond portfolio (net of the 24 bps expenses) as I understand it. As I understand it it is essentially a pass through except for fund expenses and a bit of retention or extra distribution of cash flow to keep the NAV stable.

I don't see any interest rate risk if held to maturity just like a portfolio of individual bonds. If you want out before the maturity year and interest rates have changed then the NAV will reflect the fair value of the bonds as of that date, but the fair value would converge to par when the bond matures.
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Old 06-12-2013, 12:32 PM   #36
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The yields are pretty low on their corp bond etfs and you end up purchasing them at a premium, so it seems possible to me you could end up losing money due to raising rates without any credit problems occuring. If there was no chance of losing money should rates rise and the shares are held to maturity, wouldn't their website say that in a clear manner provided there were no negative credit impacts (I am not sure I noticed any statement to that effect, but most of these disclosures are confusing to me). They may be OK, but I am holding back as the yields are quite low and the product is untested in terms of performance to maturity date.
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Old 06-12-2013, 01:59 PM   #37
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could be wrong but my general impression was that depending on bond coupon and current rates, bonds could be bought at either discount or premium and therefore you would get back at maturity either more or less than your original investment, but you are buying on yield to maturity/worst so in principle, knew your return going in.
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Old 06-12-2013, 03:21 PM   #38
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The yields are pretty low on their corp bond etfs and you end up purchasing them at a premium, so it seems possible to me you could end up losing money due to raising rates without any credit problems occuring. If there was no chance of losing money should rates rise and the shares are held to maturity, wouldn't their website say that in a clear manner provided there were no negative credit impacts (I am not sure I noticed any statement to that effect, but most of these disclosures are confusing to me). They may be OK, but I am holding back as the yields are quite low and the product is untested in terms of performance to maturity date.
I have been buying the 2019/2020 Corporate issues at a slight premium to NAV, so I would expect my annual return to maturity to be roughly the YTW of the underlying bond portfolio less 24 bps less a slight adjustment for the premium (before any credit defaults).

ETFs | Guggenheim Investments provides a calculator that will do an estimated net acquisition yield calculation for you based on a purchase price you provide. On June 7, the NAV was $20.79 and they were trading at ~$20.90 so the estimated acquisition YTW was 2.21% (before any defaults).

I guess that I don't view the yield as being low. IIRC the 2.21% yield is about the same as the VFICX after considering the .04% ER difference and the duration is similar as well (5.14 for BSCJ vs 5.30 for VFICX).

The 2011 and 2012 series had maturity distributions that were a bit north of $20. See ETFs | Guggenheim Investments

I really don't see how I could end up losing money on these if I hold them to 2019/2020 absent any credit events (which would affect bonds funds as well). I can see where my yield might be lower than the 2.21% in the example depending on how the distributions play out but the a slightly lower yield in exchange for lower interest rate risk is attractive to me.

The thing I do not like about them is the way they unwind in the terminal year is that they hoard the maturity proceeds until the end of the year which depresses the return, but if they continue to do so I will just sell 6 months to a year before the end of the maturity year.
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Old 06-12-2013, 04:43 PM   #39
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Thanks pb4uski, you did better than me in exploring their website.
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Old 06-12-2013, 05:36 PM   #40
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I just found a 10 year CD, 2.5%. At least I will preserve my capital.
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