FloridaJim57
Recycles dryer sheets
I have a traditional IRA with Vanguard. Can someone explain how I can transfer some of the funds in my mutual funds to CDs? Are there drawbacks, etc?
CDs in an IRA?
- Thread starter FloridaJim57
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You have to sell shares of the mutual fund. Once sold, those funds will appear as cash in your account. Then you can purchase CDs with that money. Unfortunately, losses in a traditional IRA are no longer tax deductible in that year unless you cash out the IRA.
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Alex The Great
Recycles dryer sheets
Yes you can as explained above. I do that all the time in Fidelity traditional IRA. The only drawback is your money will grow at fixed rate. It may be actually an advantage these days when market is falling apart. But it quickly become a looser investment when market recover.
njhowie
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But, we don't know if, or when the market will recover, or from what level the market will recover.
Do you have a fixed income part of your AA? It serves a purpose. It's never a "loser" investment, because you put your money into it for a purpose, and that purpose is rarely to get the maximum return. What you are guaranteed (with the CD), is that it will not lose money - you are guaranteed to get your principal back and interest with no risk.
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The thread linked below is getting long and maybe daunting to read it all, but it is full of posts from people buying brokered CDs/Bonds.
https://www.early-retirement.org/fo...period-for-fixed-income-investing-114400.html
Alex The Great
Recycles dryer sheets
Yes that's correct except one thing: money are still lost if CD return is substantially lower than equities. But I agree CD need to serve its purpose i.e. a temporary shelter for money to use in near term for example.
This is one of those Fat FIRE responses that doesn't apply to everyone. Some of us have smaller nest eggs than others and can not afford the risk in equities. For those of us in that boat, a CD is not a temporary shelter but part of a fixed income portfolio.
The money is not lost in a CD just because the may be lower than another investment. It's just at a different spot in the risk/reward curve. In prior years fixed income has paid my bills and in 2022 I haven't lost a penny.
You can do this, and I have. You need to follow the process that erkevin described. Call Vanguard if you are confused about how to handle it and they can walk you through it.
IMO, the biggest drawback right now for buying Vanguard's brokered CDs is that, in the last few weeks, there have been slim pickings for non-callable CDs that are more than a couple of years. (My bank's non-callable CD rates are better than Vanguard's right now, which was not the case for most of this year.) I am considering buying agency bonds for my IRA instead. I'm not sure that buying the non-callable shorter-term CDs is worth it given the rise in the yield for the settlement account, which is likely to rise a little bit more when the Fed does a couple more hikes.
Someone at Vanguard's fixed income desk did tell me that there tends to be fewer CDs available late in the year, so maybe there will be better options at Vanguard in early 2023.
The issue of whether to sell mutual funds right now is a different issue and will depend on a number of factors. Earlier this year, I sold my bond mutual funds that were in my IRAs.
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OP. Yes you can. As explained in previous posts.
1. Read up. Differences between "Broker Cd" and "CD you buy from individual bank"
2. Biggest difference. Bank/Credit Union issued CD. You know in advance the "penalty"
for early redemption.
Broker CD. You must "sell" open market. You do not know what your redemption
value will be. (Rule: Broker Cd. Plan on holding to maturity).
3. In general. IMHO, you can get better "rates" going to the individual financial
institution. (online banking). Which I have been doing until now.
4. As I get older. And getting my "Estate" in order. I am using " Broker CDs".
Vanguard and Schwab. Simplify the process.
Good luck.
1. Read up. Differences between "Broker Cd" and "CD you buy from individual bank"
2. Biggest difference. Bank/Credit Union issued CD. You know in advance the "penalty"
for early redemption.
Broker CD. You must "sell" open market. You do not know what your redemption
value will be. (Rule: Broker Cd. Plan on holding to maturity).
3. In general. IMHO, you can get better "rates" going to the individual financial
institution. (online banking). Which I have been doing until now.
4. As I get older. And getting my "Estate" in order. I am using " Broker CDs".
Vanguard and Schwab. Simplify the process.
Good luck.
