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Are CDs and Short Term Bonds Cash or Bonds ?
01-24-2014, 09:10 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,866
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Are CDs and Short Term Bonds Cash or Bonds ?
I'm looking at my asset allocation and was wondering how the people here categorized the following:
Short Term Bonds
PenFeb 5 year 3% CDs
If I count these as cash then my AA is 50 / 30 / 20. If I count them as Bonds it is 50 / 40 / 10. Big difference.
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11
ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
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01-24-2014, 09:20 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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I consider short-term bonds to be just that - bonds. I categorize CD's as cash. Others will likely have a different opinion...
__________________
Numbers is hard
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01-24-2014, 09:37 AM
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#3
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gone traveling
Join Date: Sep 2003
Location: DFW
Posts: 7,586
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Quote:
Originally Posted by REWahoo
I consider short-term bonds to be just that - bonds. I categorize CD's as cash. Others will likely have a different opinion...
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+1, a stable value fund is another one that might be difficult to place in a specific category
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01-24-2014, 09:48 AM
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#4
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
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Quote:
Originally Posted by REWahoo
I consider short-term bonds to be just that - bonds. I categorize CD's as cash. Others will likely have a different opinion...
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+2
Bonds are bonds, IMO.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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01-24-2014, 09:52 AM
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#5
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
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Quote:
Originally Posted by W2R
+2
Bonds are bonds, IMO.
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+3
An exception for me are the IBonds I own which I count as cash in my AA, since their principal is guaranteed by the US Treasury. YMMV
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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01-24-2014, 10:06 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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CD is fixed income.
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May we live in peace and harmony and be free from all human sufferings.
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01-24-2014, 10:11 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Sep 2012
Posts: 1,568
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Traditionally, bonds have greater than one year to maturity. Cash is one year or less.
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You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
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01-24-2014, 10:14 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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Quote:
Originally Posted by gcgang
Traditionally, bonds have greater than one year to maturity. Cash is one year or less.
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So by this definition you'd classify a 5yr PenFed CD as ....?
__________________
Numbers is hard
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01-24-2014, 10:29 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: Mar 2003
Posts: 18,085
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I put CDs and I bonds in the cash bucket, all else in the bond bucket. But I roll them all up into one measure of fixed income for the sake of looking at AA. After all, cash is just extremely short duration fixed income.
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"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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01-24-2014, 10:45 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Sep 2012
Posts: 1,568
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Quote:
Originally Posted by REWahoo
So by this definition you'd classify a 5yr PenFed CD as ....?
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If it has more than one year to maturity, it's bond.
__________________
You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
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01-24-2014, 10:54 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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Quote:
Originally Posted by gcgang
If it has more than one year to maturity, it's bond.
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Can you provide a link to this definition?
__________________
Numbers is hard
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01-24-2014, 10:58 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,866
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Quote:
Originally Posted by Alan
+3
An exception for me are the IBonds I own which I count as cash in my AA, since their principal is guaranteed by the US Treasury. YMMV
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Yes, I count IBonds as cash also.
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11
ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
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01-24-2014, 11:04 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,866
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Quote:
Originally Posted by gcgang
Traditionally, bonds have greater than one year to maturity. Cash is one year or less.
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Interesting - that would be the accounting definition of short-term vs long-term asset. To some degree I like it even if it is non-traditional because it is measurable and leaves no room to argue. However, this turns my I-Bonds which feel very much like cash, into Bonds and my short term bonds, which are clearly debt instruments, into cash.
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11
ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
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01-24-2014, 11:51 AM
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#14
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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Does it really matter how you label things?
Your portfolio is what it is, whether you label it 50/30/20 or 50/40/10.
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01-24-2014, 11:54 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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I prefer not to get caught up in definitions, but rather to focus on what the intended purpose is. If you have an AA strategy that includes keeping a portion of your investments in fixed income, you can select from CDs, bonds, money markets, or other similar types of investments. The purpose of the fixed income portion of your portfolio is to provide some stability against the volatility of the stock markets.
It could be argued that in today's bond environment, only very short term bonds may actually provide this stability, or at least the perception of it, since we have no idea how long interest rates will stay this low.
For purposes of AA strategy, I see no problems with substituting a 5 year CD in place of an intermediate term bond fund. The yield is currently higher and there is no real volatility since the principal is guaranteed. Intermediate and long term bond funds actually introduce enough volatility that it could be argued they are counter to the purpose of having fixed income in your portfolio.
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01-24-2014, 11:55 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Nov 2009
Location: SF East Bay
Posts: 4,324
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Quote:
Originally Posted by FIREd
Does it really matter how you label things?
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__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.
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01-24-2014, 12:21 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,866
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Quote:
Originally Posted by FIREd
Does it really matter how you label things?
Your portfolio is what it is, whether you label it 50/30/20 or 50/40/10.
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For the modeling tools it actually makes quite a difference in success rates. Of course, one can say that if it means the difference between a success rate that I am comfortable with vs one I am not comfortable with then I probably should not ER (which would increase my OMY poll response to "too many years to count").
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11
ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
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01-24-2014, 12:31 PM
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#18
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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Quote:
Originally Posted by Live And Learn
For the modeling tools it actually makes quite a difference in success rates. Of course, one can say that if it means the difference between a success rate that I am comfortable with vs one I am not comfortable with then I probably should not ER (which would increase my OMY poll response to "too many years to count").
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Personally, I think that CDs have cash-like characteristics (safe principal, FDIC-insured) and bond-like characteristics (they carry inflation risk, re-investment risk, etc...). For modeling purposes, I would label them 50% cash and 50% bonds.
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01-24-2014, 12:59 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: Oct 2006
Posts: 7,733
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I agree CD are cash. On the other hand for modeling purposes, the characteristic of my Penfed 5% CD that mature in 2021 are quite a bit different than having my money in money market.
I'd say the ability of somebody to withdraw 4% a year with a portfolio
That was 500K TSM
450K TBM
and 50K money market
is considerably lower than someone portfolio is
500K TSM
250K 10 year 5% Penfed CD
200K 3%-3.5% Penfed CD maturing between 2015 and 2018
50K in the money market
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01-24-2014, 01:17 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by DFW_M5
+1, a stable value fund is another one that might be difficult to place in a specific category
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I put stable value in with my bonds and just call them all "fixed income". I'd probably put the CD in fixed income too because one defining property of cash is liquidity and you don't have that with a CD.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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