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Old 04-04-2009, 09:54 PM   #21
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I hope I don't sound fearful; I'd prefer "cautious." Since I only have a few months to decide, I need to do some serious studying. Thanks to all who responded.
Many of us are. I endorse OAG recommendations.
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Old 04-05-2009, 10:21 AM   #22
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This is backwards as far as taxes go. You want your equities in your taxable accounts where they are (a) tax-deferred, (b) you can deduct your losses, and (c) after the tax-deferal they are taxed at a low rate.. You want your CDs and other fixed income in your tax-advantaged accounts since otherwise all the income would be taxed yearly at your marginal income tax bracket...
I understand this logic, but one thing I don't understand: To have CDs in my tax-advantaged account, I'd need to buy them in my IRA at Vanguard - I haven't done that yet because CD rates at Vanguard always are lower than I can get from banks directly. So the lower interest rate cancels out any tax savings, and I'll have to pay taxes on that Vanguard CD interest someday in the future anyway. Am I missing something here?
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Old 04-05-2009, 12:08 PM   #23
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You are missing all the years of tax-deferred compounding of interest. I hope you understand that you can have many IRAs split among many banks and each of those bank IRA can have any kind of CDs of your choice in them. That is: you don't need to have your CDs in an IRA at Vanguard.
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Old 04-05-2009, 12:23 PM   #24
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I understand this logic, but one thing I don't understand: To have CDs in my tax-advantaged account, I'd need to buy them in my IRA at Vanguard - I haven't done that yet because CD rates at Vanguard always are lower than I can get from banks directly. So the lower interest rate cancels out any tax savings, and I'll have to pay taxes on that Vanguard CD interest someday in the future anyway. Am I missing something here?
DW and I have IRA's (both Roth and Traditional) at a "bank" actually Credit Union. We used to have them scattered at other Credit Unions and Banks but a few years ago (in preparation for RMD's) we "consolidated" them at a single Credit Union solely for conviencience. Very simple to do, just do custodial transfers on redemption dates for the CD's. They are all currently earning 6.25% (and will be for a tad over then next 5 years). RMD's will occur but not impact the underlying interest rate on the particular CD they come out of.
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Old 04-05-2009, 07:09 PM   #25
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I'm curious -- I've seen Treasuries recommended, but not TIPS. Why not? (To add more confusion for SarahW).
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Old 04-05-2009, 07:28 PM   #26
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I believe that at the present time, TIPS are not a good value. TIPS are quite volatile and many people have lost money with them. This is particularly true of a TIPS fund such as the Vanguard fund VIPSX (one-year return: -2.9%). I think you want to buy the TIPS fund when the real yield is above 2.5% and sell when the real yield is below 1.5%. You can make more money off the capital gains than you can off the dividend. Presently the real yield of the TIPS fund is about 1.4%, so it is in the sell range.

If you bought a TIPS bond when they had a real yield of 3%, you should think about selling the bond and booking a nice capital gain worth maybe 2 years of dividends. Because you did so well with capital gains, you can afford to wait until the bonds are a better buy in the future.

All you have to do is chart VIPSX (tips) vs VFIIX (gnma) to see what's going on. In the spirit of full disclosure, I should point out that many people to do not agree with the buying/selling of the VIPSX as I propose here.

See also: http://research.stlouisfed.org/fred2/series/DFII10
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