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View Poll Results: Have You or Do You Plan to Use a Bond or CD Ladder for income?
Yes, a 5 or more yr ladder made up of individual bonds 9 11.84%
Yes, a 5 or more yr ladder made up of CDs 19 25.00%
Yes, both bonds and CDs 16 21.05%
No/no plan, though I won't say never 32 42.11%
Voters: 76. You may not vote on this poll

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Poll: Bond and/or CD Ladders?
Old 10-28-2018, 12:17 PM   #1
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Poll: Bond and/or CD Ladders?

I may regret a poll for this thread but we'll see. I'm used to being told my polls are wrong/incomplete/poorly structured/etc.

I've never bought an individual bond or CD, much less laddering (5 years or more), but I am thinking about it for a portion of our expected annual income just for some stability and general portfolio investing freedom. I realize the quality of individual bonds would be a primary consideration.

This is NOT about bond funds, individual bonds specifically held as part of an income ladder.
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Old 10-28-2018, 12:23 PM   #2
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I've purchased individual bonds and tried to cover a range of maturity dates, but no specific ladder.
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Old 10-28-2018, 12:23 PM   #3
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Looks like I am first here. I have several CD's laddered. Some at PenFed (about to mature and be reinvested) and some at Ally Bank (two year ladder).

I also buy T Bills in 3, 6, 9, and 12 month maturities from VG (no fee). I have about a year's worth of those.

I call this my set of ladders (over 5 years though).
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Old 10-28-2018, 12:35 PM   #4
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OP - Can you define the term "5-year"? Is that the bond term, or maturity, or the rungs?

I have a bond ladder but I consider it to be infinite in length but the rungs are 1-year apart. By that I mean every year I buy new bonds using the proceeds from the bonds that matured this year. The bonds I buy are a combination of 2 and 3-year Treasuries (technically, they are Notes) and 5-year TIPS. I try to keep the average maturity around 3 years.
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Old 10-28-2018, 12:47 PM   #5
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Whereas most folks will have equities for the bulk of their portfolio with bonds and CDs for a smaller portion, my portfolio may was well simply be called a municipal bond/CD "fund" - where equities are only 2%.

The maturity curve for my portfolio looks like the right half of a bell curve, with the bulk coming in under 5 years, a smaller amount in 5 to 10 years, and a much smaller amount at 10 to 20 years.

I treat the entire portfolio as one great big ladder. As I receive interest or have maturities, I'm looking to immediately reinvest in new municipal bonds and CDs to get higher yields, while pushing out the maturities and maintaining a similar maturity curve of my holdings.

Obviously I'm running an extremely low risk portfolio, and my investment objective is capital preservation at this time and likely for the next several years.
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Old 10-28-2018, 12:55 PM   #6
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Regarding the OP: I'm not sure why all bond funds would be excluded. The "maturity date" bond funds usually liquidate on Dec 31s of their "target" year and are suitable for ladders (since you know going in how much you'll get paid, no market risk). These do have a cost, but their diversity reduces the default risk of having all your dough in the bonds of a single company/entity.
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Old 10-28-2018, 01:04 PM   #7
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I have been rolling corporate bonds, CDs, treasuries, for the past 30 years. I don't buy ETFs or mutual funds other than money market or stable value. I will sometimes buy CEFs if their yield is attractive and they are trading at a significant discount to their net asset value. I have zero exposure to equities. Given that we have 3 homes, I consider 2 of them to be part of our investment portfolio. For us it's all about a predictable income stream and capital preservation and living with zero debt.
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Old 10-28-2018, 01:09 PM   #8
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I have a lot of cash in CD's and treasuries, all short term. Not for the income but for the stability and availability. Income is generated by Social Security, pensions, IRA's with RMD's and the rentals.

ETA: Other than treasuries, I don't do bonds, notes or bills.
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Old 10-28-2018, 01:14 PM   #9
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I ladder muni’s for taxable and corporates for deferred accounts. I am using them to achieve my desired income within my first 4-5 years of retirement to ward off return sequence risk especially now in a rich market.
I love them. I have a bunch maturing between now and January and will reinvest them where the market gives me the best return. That has been in 2-3 year range. I try and target 1.5x - 2x the current rate of inflation and buy as high a quality as I get for my goals.
I am up about 2%YTD with about 30% in equities. 2 years out from FIRE. I am in capital preservation mode.
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Old 10-28-2018, 01:18 PM   #10
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Quote:
Originally Posted by TwoByFour View Post
OP - Can you define the term "5-year"? Is that the bond term, or maturity, or the rungs?

I have a bond ladder but I consider it to be infinite in length but the rungs are 1-year apart. By that I mean every year I buy new bonds using the proceeds from the bonds that matured this year. The bonds I buy are a combination of 2 and 3-year Treasuries (technically, they are Notes) and 5-year TIPS. I try to keep the average maturity around 3 years.
To me it might start with buying a 1, 2, 3, 4, and 5 year CD or individual bonds (plural), cashing in one each year and buying another 5 year CD/bonds. But I’ll let each of you define it as you see fit. And it doesn’t have to be 5 year maturities.
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Old 10-28-2018, 01:20 PM   #11
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Quote:
Originally Posted by samclem View Post
Regarding the OP: I'm not sure why all bond funds would be excluded. The "maturity date" bond funds usually liquidate on Dec 31s of their "target" year and are suitable for ladders (since you know going in how much you'll get paid, no market risk). These do have a cost, but their diversity reduces the risks of having all your dough in the bonds of a single company/entity.
Fair point it seems. I was attempting to get exclude any bond fund subject to interest rate/NAV risk.
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Old 10-28-2018, 01:29 PM   #12
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We had a couple CDs through PenFed but are down to one that matures in December. Also had about 250 in California tax free, VCADX. That was pretty boring - we got dividends that about matched what the bond fund value was losing. Talked about selling it and harvesting the loss for taxes. Then Ally came up with its 1.9% + 1% bonus for about three months offer. We decided to max the offer and sell 100 of the VCADX. There was an oopsie and Chase sold 200, so we decided it was a happy accident and opened two accounts with Ally, with each of us being the Primary on an account. Have another CD with Andrews and one with Nasa and a chunk in EBSB. Pretty big chunk of cash that can be drawn either immediately or matures December, February, May or December of next year. Average is about 3%, which is picayune compared to the property loans. Those can pay off any time - I expect about 3/4 of them will be retired next year.

Typing that all out it looks like we are short term and just flit from investment to investment - odd because I feel like a lump that just sits and moves numbers now and again.
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Old 10-28-2018, 01:30 PM   #13
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Currently don't have any CDs, though in the past (>10 years ago) I regularly used them. Currently, own about $400K of US savings bonds (do they count for this question?), all at least 15 years old, some approaching 30 years old. About half were originally purchased by now deceased parents. Almost all of the savings bonds have been paying at least 4%.
Currently establishing a ladder of 1 to 12 month US Treasury Bills with my short term (cash?) portion of portfolio.
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Old 10-28-2018, 02:13 PM   #14
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I can't see the poll using my phone but I am transitioning toward a bond ladder method. I sold BIV and bought corporate bonds issued by my former megacorp about 6 weeks ago. The amount is meant to provide a portion of my income in 2020 - amount needed from my portfolio - and will mature in Nov 2019. Coupon was 4.25% but had to pay a premium so yield is about 3.4%. I will watch for an opportunity to make a similar move for 2021 and 2022 revenue in the coming months.
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Old 10-28-2018, 02:17 PM   #15
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As an investment, an FDIC-insured CD is equivalent to any other government "full faith and credit" instrument.

A brokered FDIC-insured CD is also functionally no different than a govvie. Very easy and cheap to buy, sometimes free to buy. The govvies are maybe slightly less expensive to sell before maturity but since we are talking ladders here that is not a difference worth worrying about.

Investment grade bonds are pretty much equivalent to the CDs and govvies except for a very small risk of default and consequent hassle.

So -- what is the difference in people's minds that causes this question to be asked?
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Old 10-28-2018, 03:05 PM   #16
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As an investment, an FDIC-insured CD is equivalent to any other government "full faith and credit" instrument.

A brokered FDIC-insured CD is also functionally no different than a govvie. Very easy and cheap to buy, sometimes free to buy. The govvies are maybe slightly less expensive to sell before maturity but since we are talking ladders here that is not a difference worth worrying about.

Investment grade bonds are pretty much equivalent to the CDs and govvies except for a very small risk of default and consequent hassle.

So -- what is the difference in people's minds that causes this question to be asked?
Agree. If you look at default rates of investment grade bonds, you see they are well worth the additional return for the risk.
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Old 10-28-2018, 04:11 PM   #17
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Originally Posted by Midpack View Post
I may regret a poll for this thread but we'll see. I'm used to being told my polls are wrong/incomplete/poorly structured/etc.

I've never bought an individual bond or CD, much less laddering (5 years or more), but I am thinking about it for a portion of our expected annual income just for some stability and general portfolio investing freedom. I realize the quality of individual bonds would be a primary consideration.

This is NOT about bond funds, individual bonds specifically held as part of an income ladder.
I answered “both bonds & CDs”, although the ‘bonds’ portion (minority) is in a short/intermediate term muni bond fund. It’s all in taxable accounts. The time period it’s assigned to cover is ~6 yrs, until all of our pensions + SS are on line. So, it’s purpose is similar to how I interpret your “stability” comment. As I’ve noted recently, even though we use a VWR + cash buffer methodology, as we get closer to SS claiming age, I feel like our cash buffer has kind of turned into a de-facto ‘bucket’ of guaranteed income that covers our essential expenses gap until we have true guaranteed income covering essential expenses. In that sense, we’ve migrated toward a ‘safety first’ approach.
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Old 10-29-2018, 11:44 AM   #18
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I voted Yes, both CD and Bonds even though most is in target date (bullet) bond funds and is an eight year ladder, not five. Hope it doesn't mess your poll results
Initially, my ladder covered all essential expenses but I am now rebuilding it to be a five year essential and discretionary expenses ladder.
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Old 10-29-2018, 12:12 PM   #19
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I voted Yes, both CD and Bonds even though most is in target date (bullet) bond funds and is an eight year ladder, not five. Hope it doesn't mess your poll results
Initially, my ladder covered all essential expenses but I am now rebuilding it to be a five year essential and discretionary expenses ladder.
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You can see from my post (just before yours) that we use our ladder to cover ‘essential’ expenses until all pensions/SS are on line to do that. I’d be interested in what prompted you to move from covering essential expenses to all expenses with your ladder; and why the shorter term?
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Bond and/or CD Ladders?
Old 10-29-2018, 12:27 PM   #20
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Bond and/or CD Ladders?

Nope, not me.

I have bond funds:
  • TSP G Fund
  • Vanguard Total Bond Market (VBTLX)
  • Vanguard Wellesley (VWIAX, 60.29% bonds)
And, I have cash:
  • Vanguard Prime Money Market (VMMXX)
  • Local bricks 'n' mortar bank, savings and checking
No CD's, no individual bonds, no plans to change my AA to include either.

The G Fund is guaranteed never to drop in share price, and has a small yield so it's sort of like cash. I take substantial equal monthly payments from it so it sort of mimics an additional pension that isn't adjusted for inflation.
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