Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-19-2011, 03:24 PM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,337
I have no bonds, CD, or mutual funds with a duration much over 2 years. Well, I do have two 5 yeard CD's with a bank that has a 60 day penalty for early withdrawal. That penalty is low enough that I can break the CD and still do at least as well as buying a two year CD. However, now that a credit union has been able to increase its penalty retroactively, I would not buy another. Risk is for stocks and longer bonds. Not CD's.
__________________

__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-19-2011, 03:26 PM   #22
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
We will not see "high" rates on savings and "safe" investments any time in the foreseeable future, IMO. Slightly higher? Maybe. But I think there's just WAY too much cash looking for safe harbors to expect "normal" interest rates any time this decade.
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 11-19-2011, 03:56 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,337
With the Federal Govt adding over $1,000,000,000,000 (one trillion dollars) to the deficeit every year, I can understand the Feds not wanting to see interest rates rise. How do they explain this to the citizens when they have to pay, say 5%, on this amount of money?

We do have the best government money can buy. To bad, we don't have the money to buy it!!
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 11-19-2011, 06:26 PM   #24
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Quote:
Originally Posted by ziggy29 View Post
We will not see "high" rates on savings and "safe" investments any time in the foreseeable future, IMO. Slightly higher? Maybe. But I think there's just WAY too much cash looking for safe harbors to expect "normal" interest rates any time this decade.
This is the optimist view. If/when foreign dollars decide US bonds are not a good buy......
__________________
WilliamG is offline   Reply With Quote
Old 11-19-2011, 06:54 PM   #25
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,487
Quote:
Originally Posted by WilliamG View Post
This is the optimist view. If/when foreign dollars decide US bonds are not a good buy......
On the contrary. Foreign dollars mean US$ remitted abroad to pay for goods imported into the US. Those $$ have no place else to go so they are recycled back into US Treasuries. If by some good fortune the US should import less and produce more domestically, there would be less need to emit US treasury bonds. Domestic purchases by institutions, such as pension funds and investors, should satisfy gov't financing needs and then some.

I agree with Ziggy.
__________________
MichaelB is offline   Reply With Quote
Old 11-19-2011, 09:00 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by MichaelB View Post
On the contrary. Foreign dollars mean US$ remitted abroad to pay for goods imported into the US. Those $$ have no place else to go so they are recycled back into US Treasuries.
I always find this assertion hard to understand. It may be correct, but I just can't see how. Say I am a Vietnamese factory owner. I ship my shirts, and Walmart pays me with dollars. It seems that I could join with others and buy ships, or oil storage depots, or natural gas fields with these dollars. Although someone would always be getting these dollars in these transactions, they do not have to go into long term US bonds. Perhaps very short term bonds, perhaps the heroin trade as working capital. True that the $$s would never be destroyed, but if the world truly lost confidence in them their value should approach zero.
If there were more eagerness to buy stuff, or even corporate stock than bonds, bonds should become relatively less expensive, and it should be harder to sell new issues.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 11-19-2011, 09:28 PM   #27
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,726
Note with the low interest rates the penalties for early withdrawal of CD's are quite low (like 6 months interest or less than 1%) from most banks a few have toughened the penalties recently however. If you can still get the old penalty, then it makes sense to go with a long term CD and if the rates go up 2-3% take the penalty as you will be ahead at the end of the day (and the penalty can be deducted against the interest recieved)
__________________
meierlde is offline   Reply With Quote
Old 11-19-2011, 10:54 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Maybe. I am thinking of getting rid of my bond funds (<5% of my assets) as interest rates can only go higher from here. Maybe put the money into Wellesley. (I know, they have bonds, too, but I won't have to think about it.)

Quote:
Originally Posted by Alan View Post
I have lots of bonds within Wellesley and Target Retirement Funds in VG and Fidelity.

The only bond fund I'm invested in is a VG short term bond fund which should recover well enough for my needs in a rising interest environment.

The only individual bonds I hold are I-Bonds.
I-bonds

Interesting, Alan.

I also have Wellesley (thanks, Unc!) and a VG short-term bond fund.

I do not trust target funds. I can do that myself.

No I-bonds. I think I missed the boat on them.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 11-20-2011, 04:11 AM   #29
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
No. I will keep my focus on CDs, municipal bonds, and cash.
Quote:
Originally Posted by jIMOh View Post
Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 11-20-2011, 07:17 AM   #30
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,487
Quote:
Originally Posted by haha View Post
I always find this assertion hard to understand. It may be correct, but I just can't see how. Say I am a Vietnamese factory owner. I ship my shirts, and Walmart pays me with dollars. It seems that I could join with others and buy ships, or oil storage depots, or natural gas fields with these dollars. Although someone would always be getting these dollars in these transactions, they do not have to go into long term US bonds. Perhaps very short term bonds, perhaps the heroin trade as working capital. True that the $$s would never be destroyed, but if the world truly lost confidence in them their value should approach zero.
If there were more eagerness to buy stuff, or even corporate stock than bonds, bonds should become relatively less expensive, and it should be harder to sell new issues.

Ha
Hello Ha

The reason the $$ used to import stuff end up back in US bonds is the Chinese factory owner has to exchange his $$ for local currency through the Central Bank. The exchange rate is fixed so the factory owners doesn't get as much money as he would like, and Gov't policies discourage consumption so he either saves or invests locally. The Central Bank cannot spend the money so it buys bonds, and because it intends to control the exchange rate, it is forced to buy mostly US$ denominated instruments.

If those exporters (China, Germany, Japan, OPEC) consumed more or allowed their exchange rates to rise and global trade imbalances might improve.
__________________
MichaelB is offline   Reply With Quote
Old 11-20-2011, 04:41 PM   #31
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
Originally Posted by Mulligan View Post
I was about to lump some cash into a 5 year CD about a year ago that paid 3.75%. Then I thought what idiot would tie up their money for that. I know the answer to that question now.... Me. If I could go back in time!
Yes, only if we could roll back the time or travel into the future so that we can make a informed decision on investing and other matters.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 11-20-2011, 09:27 PM   #32
Recycles dryer sheets
 
Join Date: Nov 2007
Posts: 103
I dropped my intermediate (and longer) term bonds last week, and exchanged them for very short term treasuries. I decided to just keep my risk in my stock holdings, and not get too greedy chasing yield when the party stands a good chance of ending soon. I banked some nice gains on my TIPS and intermediate term corporates. The purpose of the treasuries will be primarily capital preservation, reduced volatility, and used to rebalanced my stock fluctuations.
__________________
slazenger is offline   Reply With Quote
Old 11-21-2011, 10:22 AM   #33
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 1,563
I would think one's AA would anticipate market changes, not react to them. I mean if you think interest rates are going to rise and thus likely hurt most investments other than short-term bonds/notes, why wouldn't you have allocated or moved there already? Continually reacting seems like a good way to keep your total return down.
__________________
gerntz is offline   Reply With Quote
Old 11-21-2011, 10:42 AM   #34
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 868
Quote:
Originally Posted by Alan View Post
No.
+1
__________________
ripper1 is offline   Reply With Quote
Old 11-21-2011, 10:47 AM   #35
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 868
Quote:
Originally Posted by jIMOh View Post
The lowering of interest rates over the last 5-10 years created a GREAT period to be a bond investor. Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?
Don't just do something, Stand there.
__________________
ripper1 is offline   Reply With Quote
Old 11-21-2011, 11:01 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by MichaelB View Post
Hello Ha

The reason the $$ used to import stuff end up back in US bonds is the Chinese factory owner has to exchange his $$ for local currency through the Central Bank. The exchange rate is fixed so the factory owners doesn't get as much money as he would like, and Gov't policies discourage consumption so he either saves or invests locally. The Central Bank cannot spend the money so it buys bonds, and because it intends to control the exchange rate, it is forced to buy mostly US$ denominated instruments.

If those exporters (China, Germany, Japan, OPEC) consumed more or allowed their exchange rates to rise and global trade imbalances might improve.
Michael, can't the Chinese government use $$ to buy all the hard assets all around the world that they are buying? Steel for their pipelines and high rise buildings. Coal.

If George Soros could single-handedly break The Bank of England, surely the vastly wealthier Chinese government could upset the US bond market? In fact, the rate of US bond buying by the Chinese has varied widely from quarter to quarter. There must be something else they are doing when they are not buying.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 11-21-2011, 01:23 PM   #37
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,487
Quote:
Originally Posted by haha View Post
Michael, can't the Chinese government use $$ to buy all the hard assets all around the world that they are buying? Steel for their pipelines and high rise buildings. Coal.

If George Soros could single-handedly break The Bank of England, surely the vastly wealthier Chinese government could upset the US bond market? In fact, the rate of US bond buying by the Chinese has varied widely from quarter to quarter. There must be something else they are doing when they are not buying.

Ha
That's what is happening.

China's central bank prints remembi and buys the $US from the exporter. The independent Central Bank, together with the central gov't, encourage savings by both limiting both consumer credit and the import of consumer goods. So the local currency is put in the bank at negative real rates, and the bank then lends that money to business for new industrial projects. They import lots of raw materials, which is why those prices have risen so much. It is also why there is so much inflationary pressure in China.

The Central Bank buys bonds directly from the US gov't and also in secondary markets, and in the short term transactions cannot be tracked. It looks irregular but it is not. Rest assured, however, that they will continue to buy US and Euro bonds as long as they have trade surplus with these regions.

China cannot afford to upset the bond market. If the US Treasury bond suddenly lost substantial value it could make China's Central Bank insolvent.
__________________
MichaelB is offline   Reply With Quote
Old 11-22-2011, 02:00 PM   #38
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
I think that that could change fairly quickly though. A lot can change in a decade.

A positive scenario--

The economy recovers. The Fed starts sopping up the liquidity that it has pumped into the market, removing a fair amount of the cash looking for safe harbors. People start investing their money in the next big thing (tech stocks/real estate/ green technology, tulip bulbs, etc). As these investments start increasing in value, people start demanding real interest in their cash accounts.

A negative scenario--

The Fed prints too much money and inflation kicks in hard. People flee to gold/guns/MRI's/Oil/collectibles in a desparate attempt to get the depreciating dollars out of their hands. Interest rates rise as people require greater returns to hold cash.

Real interest rates are negative right now. I don't think that will be the case indefinately.


Quote:
Originally Posted by ziggy29 View Post
We will not see "high" rates on savings and "safe" investments any time in the foreseeable future, IMO. Slightly higher? Maybe. But I think there's just WAY too much cash looking for safe harbors to expect "normal" interest rates any time this decade.
__________________
Hamlet is offline   Reply With Quote
Old 11-22-2011, 03:02 PM   #39
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,132
Quote:
Originally Posted by Ed_The_Gypsy View Post
Maybe. I am thinking of getting rid of my bond funds (<5% of my assets) as interest rates can only go higher from here. Maybe put the money into Wellesley. (I know, they have bonds, too, but I won't have to think about it.)

I-bonds

Interesting, Alan.

I also have Wellesley (thanks, Unc!) and a VG short-term bond fund.

I do not trust target funds. I can do that myself.

No I-bonds. I think I missed the boat on them.
I lucked out on I-Bonds, buying most of them back when they had decent fixed rate components and when the limit was $30k / person / year. Part of the attraction at the time is that the accumulated interest is also tax-deferred.

I moved into Target Funds once I RE'ed for simplification so it is easy for DW, so she doesn't have to worry about re-balancing, and the VG 2010 fund reduced the number of funds from 4 to 1.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is online now   Reply With Quote
Old 11-23-2011, 09:57 AM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Quote:
Originally Posted by jIMOh View Post
The lowering of interest rates over the last 5-10 years created a GREAT period to be a bond investor. Are you planning to make any changes now or in near future when the fed suggests they will raise short term interest rates?
I own VWALX, VMLTX, VWITX, and of course...psssst Wellsley.

Now that my school taxes are fully paid for the year, I recently reinstated DCA to VWITX for the purpose of overall bond MF diversification, not in response to anything in the market.
I still contribute to VMLTX.
No DCA to VWALX as I have already reached my target principal amount in that fund. No changes to VWINX are planned.
__________________

__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Time to start planning IslandGardener Hi, I am... 5 09-13-2011 09:36 PM
Fixed Securities and Interest Rates chinaco FIRE and Money 6 09-11-2011 02:44 PM
Real Estate and interest rates calmloki FIRE and Money 9 08-06-2011 08:44 PM
Will CD Interest Rates Rise if Borrowing Rates Rise? John Galt III FIRE and Money 5 07-29-2011 12:58 PM
Low Interest Rates and Banks Investments chinaco FIRE and Money 4 07-16-2011 02:29 AM

 

 
All times are GMT -6. The time now is 02:36 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.