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S/T CD's in a Retirement Account
02-22-2018, 04:50 AM
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#1
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Full time employment: Posting here.
Join Date: Oct 2016
Location: Pinetops
Posts: 521
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S/T CD's in a Retirement Account
as we are entering a period of rising rates, I just can't seem to get comfortable investing my rollover into a conservative or balanced mutual fund, predominately because of the bonds.
Hence, I thought that I would invest 1/2 of the rollover between two conservative mutual funds (vwinx, fsdix) and invest the other 1/2 in a one or two year CD making 2 - 2.5%.
The old adage - "don't fight the Fed" comes to mind as I ponder my decision.
I
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02-22-2018, 04:57 AM
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#2
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Recycles dryer sheets
Join Date: Feb 2018
Posts: 98
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That's actually what I am doing. We have just over 1M in investible assets, and only 50K is in mutual funds, the rest in in laddered CD's spread out over Ally, Synchrony,and Fidelity.
As rates approach 3% (or higher) that will throw off an easy 30K a year in interest, and we sleep like a baby. After 40 years in the market (I'm 58 and 1 year away from ER), I'm done with the risks.
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02-22-2018, 05:06 AM
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#3
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Thinks s/he gets paid by the post
Join Date: Jan 2013
Posts: 3,405
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Quote:
Originally Posted by IMATERP
as we are entering a period of rising rates, I just can't seem to get comfortable investing my rollover into a conservative or balanced mutual fund, predominately because of the bonds.
Hence, I thought that I would invest 1/2 of the rollover between two conservative mutual funds (vwinx, fsdix) and invest the other 1/2 in a one or two year CD making 2 - 2.5%.
The old adage - "don't fight the Fed" comes to mind as I ponder my decision.
I
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With rising interest rates and probably rising inflation, I would ladder my CD investments. I have been laddering the next couple of years of RMD's in an inherited IRA at Fidelity. Rates are higher than their money market funds, which have high ER's that further reduce your yield, and the shopping is easy on the website.
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02-22-2018, 05:24 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,983
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+1 for the CD ladder. Bear in mind that even in periods of rising rates there can be times when rates fall. Ie recessions.
FWIW my fixed income, 58% of portfolio, is approx 70% CDs ,Series I and cash. The other 30% is corporate, high yield, mortgage, em and other funds to complete the lineup.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
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02-22-2018, 06:08 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,226
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Was wondering the same thing. I have a 35% total allocation to bonds with 85% of that allocation to a Stable Value fund. My intermediate bond fund is down 2% already this year.
Why take further losses, when almost for sure rates will rise at least for this year?
__________________
TGIM
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02-22-2018, 06:11 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by IMATERP
as we are entering a period of rising rates, I just can't seem to get comfortable investing my rollover into a conservative or balanced mutual fund, predominately because of the bonds.
Hence, I thought that I would invest 1/2 of the rollover between two conservative mutual funds (vwinx, fsdix) and invest the other 1/2 in a one or two year CD making 2 - 2.5%.
The old adage - "don't fight the Fed" comes to mind as I ponder my decision.
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I don't understand why you would want to use VWINX then at all. It is 60% of those longish bonds that you don't seem to be comfortable with. One can see in its YTD perforrmance of -2.5% that it is doing terrible compared to funds without such bonds. FSDIX has YTD of -2.6%, so it doing even worse for some reason.
Compare those returns to more typical balanced funds such as VSMGX (-0.1%) and VTTVX (-0.05%) which have more equities and intermediate-term bonds in them and less long-term bonds.
So with VWINX, you have certainly picked a fight with the Fed.
But of course, buying funds with the worst performance YTD may be buying low, so it might turn out to be a good thing.
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02-22-2018, 06:59 AM
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#7
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Full time employment: Posting here.
Join Date: Oct 2016
Location: Pinetops
Posts: 521
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Quote:
Originally Posted by LOL!
I don't understand why you would want to use VWINX then at all. It is 60% of those longish bonds that you don't seem to be comfortable with. One can see in its YTD perforrmance of -2.5% that it is doing terrible compared to funds without such bonds. FSDIX has YTD of -2.6%, so it doing even worse for some reason.
Compare those returns to more typical balanced funds such as VSMGX (-0.1%) and VTTVX (-0.05%) which have more equities and intermediate-term bonds in them and less long-term bonds.
So with VWINX, you have certainly picked a fight with the Fed.
But of course, buying funds with the worst performance YTD may be buying low, so it might turn out to be a good thing.
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When I first began the process of determining where I wanted to allocate my monies, it was going to be 50% in both funds. It was my intention to "set it, and forget it."
As I began to do further research, I became aware that VWINX didn't have such a good record in periods of rising rates and your point is why I began pondering some additional CD's.
In assessing my own needs, there would be nothing wrong with laddering the CD's for the next 5 years and making decisions on reinvestment once they became due.
I
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02-22-2018, 07:02 AM
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#8
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Recycles dryer sheets
Join Date: Sep 2013
Posts: 106
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An alternative is T-Bills. Just slightly lower yield and much more liquid. I have recently purchased 1 yr. @ 1.83% and six month @ 1.826%.
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02-22-2018, 07:04 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Nothing wrong with CDs here. I read there are some "no penalty" early withdrawal CDs, too, in case interest rates go up so much that you want to buy new CDs instead with higher rates. T-bills and T-notes are also paying well and will be state-income-tax-free.
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02-22-2018, 08:33 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 2,433
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Quote:
Originally Posted by upset264
An alternative is T-Bills. Just slightly lower yield and much more liquid. I have recently purchased 1 yr. @ 1.83% and six month @ 1.826%.
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Plus, T-bill interest is exempt from state and local income taxes.
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I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
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02-22-2018, 10:29 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
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Quote:
Originally Posted by FIRE'd@51
Plus, T-bill interest is exempt from state and local income taxes.
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Inside a retirement account, as title of the thread indicates, it's a non-issue...go for the highest yield for desired maturity.
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02-22-2018, 10:55 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2003
Location: Florida's First Coast
Posts: 7,662
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Quote:
Originally Posted by njhowie
Inside a retirement account, as title of the thread indicates, it's a non-issue...go for the highest yield for desired maturity.
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Or an income tax free state.
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"Never Argue With a Fool, Onlookers May Not Be Able To Tell the Difference." - Mark Twain
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02-22-2018, 12:10 PM
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#13
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Confused about dryer sheets
Join Date: May 2016
Posts: 4
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By Upset264 "An alternative is T-Bills. Just slightly lower yield and much more liquid. I have recently purchased 1 yr. @ 1.83% and six month @ 1.826%."
I am not familiar with buying T-Bills, can you please tell me the best way to go about this?
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02-22-2018, 06:04 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by VT2FIRE
By Upset264 "An alternative is T-Bills. Just slightly lower yield and much more liquid. I have recently purchased 1 yr. @ 1.83% and six month @ 1.826%."
I am not familiar with buying T-Bills, can you please tell me the best way to go about this?
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There are a few ways, so I will give just 2 ways:
1. Create an online account at TreasuryDirect.gov. Buy T-bills there.
2. Call your broker (Vanguard, Fidelity, Schwab, ....) and ask "Can you please tell me the way to buy T-bills on your web site?"
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02-22-2018, 08:12 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 1,166
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Quote:
Originally Posted by jjflyman
That's actually what I am doing. We have just over 1M in investible assets, and only 50K is in mutual funds, the rest in in laddered CD's spread out over Ally, Synchrony,and Fidelity.
As rates approach 3% (or higher) that will throw off an easy 30K a year in interest, and we sleep like a baby. After 40 years in the market (I'm 58 and 1 year away from ER), I'm done with the risks.
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We have a somewhat similar strategy - heavy cash allocation for the interest/dividends that is going to fund a big part of our expenses in ER.
Still have way more equity and FI than we want..and a lot of VWIAX/VWINX. That WAS my "sleep well at night" fund until this year - seemed it could do no wrong until rates started creeping up, and YTD has stunk.
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02-23-2018, 03:38 AM
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#16
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Recycles dryer sheets
Join Date: Sep 2013
Posts: 106
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To buy t-bills go to your brokers website. They all have a section for bonds and cd's. Narrow it down to Treasuries, then t-bills. I find Fidelity's site the best, TD Ameritrades the worst for this. And TD charges a $25 fee for t-bills bought at auction. Fidelity and Vanguard charge no fee. You can buy original issue at auction or secondary from their offerings. Once you get the feel of their website its easy.
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02-23-2018, 04:20 AM
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#17
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Full time employment: Posting here.
Join Date: Oct 2016
Location: Pinetops
Posts: 521
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Quote:
Originally Posted by RetireSoon
We have a somewhat similar strategy - heavy cash allocation for the interest/dividends that is going to fund a big part of our expenses in ER.
Still have way more equity and FI than we want..and a lot of VWIAX/VWINX. That WAS my "sleep well at night" fund until this year - seemed it could do no wrong until rates started creeping up, and YTD has stunk.
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I ended up laddering (annually) over the next eight years at a little over 3.25%. Interest will continue to roll into the Fidelity Four in One Fund and annually I'll decide weather to roll Principal over into another Bond/CD or into VWINX.
I realize that I can get away with being ultra-conservative as I have a pension that starts in 34 months. At this stage, preservation of Capital RULES.
I
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02-23-2018, 02:52 PM
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#18
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Recycles dryer sheets
Join Date: Jun 2011
Posts: 297
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I also love CDs and welcome higher rates... But I hate paying tax on those. So I have gravitated to Muni Bonds over the years. Yes they have drawbacks but my interest is free of any taxes.
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02-23-2018, 04:21 PM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by retired1
I also love CDs and welcome higher rates... But I hate paying tax on those. So I have gravitated to Muni Bonds over the years. Yes they have drawbacks but my interest is free of any taxes.
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We hold all our fixed income in tax-deferred accounts, so no need for tax-exempt munis. No taxes on our equity holdings in taxable accounts.
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02-27-2018, 02:00 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
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Quote:
Originally Posted by LOL!
We hold all our fixed income in tax-deferred accounts, so no need for tax-exempt munis. No taxes on our equity holdings in taxable accounts.
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Plenty of good taxable munis out there which work wonderfully in tax-deferred accounts.
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