Bonds or CDs?

[Nords]

If you're comparing a 5 yr CD with a 5 yr corp bond or a 5 yr treas, a lot of the time a 5 yr CD with be more attractive b/c it is easy, fairly cheap, simple, and currently the differences [e.g. spreads] between the yields on CD and corporate bonds, treasuries, is large enough to favor CD's over other fixed income.

Remember 10-15 years ago when we wouldn't even waste the time to spit on a 5% CD?

 

[OldAgePensioner]

HaHa,
Thai GF will help with the language but having a couple of English speaking expats who know the ropes in a big plus.

And having CD's laddered here in the US would mean not having to monitor bond fluctuations. Retire@40 pointed out that 1 year CDs at 4 percent are very attractive. So if I put $500k in those CDs and generated $20k per year, I could live in Thailand very well and have enought to buy cheap beer for Ben and Lancelot.

 

[Mr._johngalt]

Galt,
I'm a recent retiree and you, charlie, um2, notth, nords, and several others have me thinking get safe, get frugal, get simple.  So, my questions here are about doing just that.

If I could just get Ben and Lancelot to set me up in BKK, I could quit worrying.

"Get safe, get frugal, get simple." I like it!

JG

 

[Eagle43]

Yeah, that should be the ER motto.

 

[Mr._johngalt]

Yeah, that should be the ER motto.

My thought too, but I would hate to change the flag. Took me a long time to come up with that. Wonder what "Get safe, get frugal, get simple"
looks like in Latin?

JG

 

[retire@40]

...So if I put $500k in those CDs and generated $20k per year, I could live in Thailand very well...

What is inflation like in Thailand? If it's 3% to 4% like here, you may need more than $500K and/or a higher total return.

 

[OldAgePensioner]

retire@40,
Good question, I'm looking into that today. But, I'd have my portfolio appreciating ( I hope ) and not touch it for the next 5 years. ( $700k in tax-deffered, $900k taxable).

By the way, anybody want of copy of a calculator that allows you to vary interest rates, inflation rates, return rates, taxation rates and vary income withdrawals, PM me and I'll email it.

It really reveals what bear vs bull, high inflation, etc does to a portfolio.


"Get safe, get frugal, get simple" -- MRGALT2U (2005)

 

[preben]

I have not looked up the official nos - but my real life experience is that 20k would be fine 10 years ago (when I first lived in Thailand) and is fine today. The next 10 year might be different!

 

[cute fuzzy bunny]

If you're comparing a 5 yr CD with a 5 yr corp bond or a 5 yr treas, a lot of the time a 5 yr CD with be more attractive b/c it is easy, fairly cheap, simple, and currently the differences [e.g. spreads] between the yields on CD and corporate bonds, treasuries, is large enough to favor CD's over other fixed income.

Now I'm not saying that bonds are better than CD's. They are just different. CD's are simple, easy, and a good alternative.

Ding ding ding...we have a winner! Right now I dont see a bond other than HY corps paying a better rate, I can always bail out of the CD if things change, and I have no faith in CPI holding at the current rates, and hence underpinning that higher ibond rate. In fact, I think the reason why long term rates arent going up is because they arent going to go much higher, will drop within 3 years, and inflation will go along with it. Real or CPI version. I think occams razor has the answer here.

OAP - Havent ever heard bad info or bad advice from Alec, he's done a nice job of filling in the better parts of my spartan description.

Ha Ha: "Especially for an unsophisticated holder."

You callin' me unsufffisiticated? If I durn knew what that there meant you might be in some trubble!

 

[OldAgePensioner]

Notth,
I posted on other threads that I am reducing from very heavily stock/fund portfolio but for the life of me, bonds don't fit me.

In Bernstein's Four Pillars there is a chart showing $1 invested in stocks, bonds and cash equivs. You can't even make out the bond or cash lines. You have to plot a log scale to see them.

I remember a post from last week or two saying you were going CD's and now I'm thinking a 1, 2,3,4,5 ladder just to grabs these current rates. Buy more if rates increase and in 5 years look at bonds maybe.

I think MRGALT2U's post "Get safe, get frugal, get laid" appeals to me.

 

[cute fuzzy bunny]

Makes some sense. Note that many evaluations of historic returns, including bernsteins, show that 100% equity allocations increase volatility without increasing returns; a 20% bit of fixed income, specificially short bonds, smooths out the volatility without decreasing returns. Same for 100% bond ports; reduced returns without reduced volatility vs a 20/80 portfolio.

I wanna know how John feels safe with well under $500k in assets, $100k in credit card debt and putting most or all of his money into junk bonds. Maybe its the working wife paying the bills that helps

 

[OldAgePensioner]

I've got a lot of work to do creating a good portfolio. But I need to decide on how to allocate first. I'm thinking 10% Cash, 20% CDs and 70%stock/fund.

And with equal sized taxable and tax-exempt portfolios, go heavy growth in the exempt, and go 50% US and 50% intl. but still with growth in mind.

I want need income for a couple of years.

 

[ats5g]

Ding ding ding...we have a winner! Right now I dont see a bond other than HY corps paying a better rate, I can always bail out of the CD if things change, and I have no faith in CPI holding at the current rates, and hence underpinning that higher ibond rate. In fact, I think the reason why long term rates arent going up is because they arent going to go much higher, will drop within 3 years, and inflation will go along with it. Real or CPI version. I think occams razor has the answer here.

OAP - Havent ever heard bad info or bad advice from Alec, he's done a nice job of filling in the better parts of my spartan description.

Ha Ha: "Especially for an unsophisticated holder."

You callin' me unsufffisiticated? If I durn knew what that there meant you might be in some trubble!

On HY bonds: I think that HY bonds in a taxable account is a very tax inefficient way to get equity exposure. IMO if you're 60% equities, 30% bonds, and 10% HY bonds, you're actually more like 65% equities, 35% bonds. I've also seen the arguments that adding HY makes a portfolio more efficient. However, all the arguments I've seen only consider HY + bonds or HY + equities. I've really not seen a good study showing how adding HY to an existing portfolio of Equities and Bonds makes the portfolio more existing. That M* conversation from the "pimp my ride" conversation kind of shows that. [my own little mvo shows that as well - though it only uses data back to 1984 ]

I don't really have an opinion about whether or not HY bonds are a "good buy" or not now, but I'd just consider them part equity and part bonds, and not particularly tax efficient.

- Alec