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Index Funds as "CD equivalents"?
01-21-2021, 07:20 AM
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#1
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Recycles dryer sheets
Join Date: Jun 2014
Location: Syracuse
Posts: 370
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Index Funds as "CD equivalents"?
Seeking slightly higher income (yes, slightly more risk) than a savings account for a chunk of funds, parked for < 3 year usage.
What would be some index funds in this category? lower risk, some reward.
2021 will be a low income year, so tax considerations are not much of a factor.
Appreciate any suggestions. Thank you.
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01-21-2021, 08:45 AM
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#2
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Full time employment: Posting here.
Join Date: Nov 2008
Location: Louisville
Posts: 600
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I'm using Vanguard Target Retirement Income fund. About 30% stock. It does go down at times, so principle is not entirely safe.
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01-21-2021, 08:59 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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Most index funds have way more risk than CDs.
Have you checked into online savings accounts? They are FDIC insured and currently yield 0.5% to 0.6%.
Or ultra short term bond funds/ETFs may work but they yield about the same.
Another one to look at are Toyota IncomeDriver Notes or Dominion Energy Reliability Investment (DERI) notes... they function similar to an online savings account in that you can add deposits or withdraw at anytime... but obviously not FDIC insured and more credit risk.. but they both currently pay about 1.5%.
Or you might look at some very high quality preferred stocks like TVC or TVE... they yield a 2.08% and 2.15%, respectively, but have some risk but are rated Aaa by Moody's and AA+ by S&P.
I have online savings account and the Toyota Income Driver and DERI Notes.
Obviously, do your own due diligence and YMMV.
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If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
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01-21-2021, 09:39 AM
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#4
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Join Date: Mar 2005
Location: Chicago
Posts: 13,149
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Quote:
Originally Posted by SunnyOne
What would be some index funds in this category? lower risk, some reward.
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Did you really mean to say "index" funds? Generally, funds with low volatility and greater than CD returns require some active management.
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"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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01-21-2021, 09:45 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 2006
Location: Rio Grande Valley
Posts: 37,931
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Not a CD obviously, but short-term bond index funds (Vanguard or Fidelity, for example) have more interest rate risk, but a very high credit quality. Still not yielding so much. Appropriate for 3 year duration.
Compare to high yield savings accounts which are safer, although their yields could drop further. At least with bond funds the NAV rises when yields drop.
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01-21-2021, 11:25 AM
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#6
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Recycles dryer sheets
Join Date: Jun 2014
Location: Syracuse
Posts: 370
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I should have clarified. I wasn't referring to stocks, only bond funds for income, any kind that might be paying more than a savings account, with obviously some additional risk, but not an outsized risk similar to stocks.
The Vanguard Ultra Short seems to be paying on par to savings accounts....so was looking for a bit more, understand there is no free lunch.
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01-21-2021, 12:59 PM
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#7
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Full time employment: Posting here.
Join Date: Apr 2005
Posts: 807
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Vanguard LifeStrategy Income Fund is 20% stocks 80% bonds, very broadly diversified. Still risks there especially given the possibility of interest rate spikes and stock market sell-offs.
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01-21-2021, 01:12 PM
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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 2006
Location: Boise
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Quote:
Originally Posted by SunnyOne
I should have clarified. I wasn't referring to stocks, only bond funds for income, any kind that might be paying more than a savings account, with obviously some additional risk, but not an outsized risk similar to stocks.
The Vanguard Ultra Short seems to be paying on par to savings accounts....so was looking for a bit more, understand there is no free lunch.
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What kind of risk do you want to take on for the higher return?
Equity risk?
Lack of diversification risk?
Duration risk?
Credit quality risk?
Depending on those answers people might be able to suggest more specifically.
For example, out of the above I choose duration risk, so I have money in VBTLX, which has a 30 day SEC yield of 1.08% but a duration of about 6.7 years.
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"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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01-21-2021, 01:25 PM
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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: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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Quote:
Originally Posted by SunnyOne
I should have clarified. I wasn't referring to stocks, only bond funds for income, any kind that might be paying more than a savings account, with obviously some additional risk, but not an outsized risk similar to stocks.
The Vanguard Ultra Short seems to be paying on par to savings accounts....so was looking for a bit more, understand there is no free lunch.
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What is the money currently earning? What is your target yield for this money?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-21-2021, 02:36 PM
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#10
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Recycles dryer sheets
Join Date: Jun 2014
Location: Syracuse
Posts: 370
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I would be looking at duration risk as well.
Right now, the earmarked money is earning a paltry .30%.
Thank you all for the feedback thus far.
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01-21-2021, 02:56 PM
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#11
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Full time employment: Posting here.
Join Date: Apr 2005
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OK I saw the qualification about bonds only not stock funds.
iBonds are paying 1.68%, adjusted every six months for inflation, no taxes until you redeem them (but 10K annual purchase limit and you have to hold them a year before redeeming). Still by far the best totally safe investment out there.
Otherwise, easy enough to get .45-.78% in an online savings account and around 1% in CDs. Check depositaccounts.com. Personally I'm keeping a goodly chunk in a local credit union MM account paying .45% as well as 1 and 2 year CDs. These are far better choices than short-term bond funds of any sort. Just make sure to stay under FDIC and/or NCUA insurance limits.
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01-21-2021, 03:11 PM
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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: Nov 2010
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Just to be clear on the I-Bonds 1.68% rate... it is 0.00% plus inflation:
Quote:
The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The 1.68% composite rate for I bonds bought from November 2020 through April 2021 applies for the first six months after the issue date. The composite rate combines a 0.00% fixed rate of return with the 1.68% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 258.115 in March 2020 to 260.280 in September 2020, a six-month change of 0.84%.
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If you can positive, definitely hold them for 20-years, then EE bonds are guaranteed to double in 20 years which is 3.53% annual yield.
Quote:
... At 20 years, a bond we sell now will be worth twice what you pay for it. If you keep the bond that long, we make a one-time adjustment then to fulfill this guarantee.
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__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-21-2021, 03:17 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
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Quote:
Originally Posted by kevink
OK I saw the qualification about bonds only not stock funds.
iBonds are paying 1.68%, adjusted every six months for inflation, no taxes until you redeem them (but 10K annual purchase limit and you have to hold them a year before redeeming). Still by far the best totally safe investment out there.
Otherwise, easy enough to get .45-.78% in an online savings account and around 1% in CDs. Check depositaccounts.com. Personally I'm keeping a goodly chunk in a local credit union MM account paying .45% as well as 1 and 2 year CDs. These are far better choices than short-term bond funds of any sort. Just make sure to stay under FDIC and/or NCUA insurance limits.
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You do forfeit 3 months of interest if you redeem them before 5 years.
They will keep up with CPI but earn nothing if CPI goes negative.
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Retired since summer 1999.
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01-21-2021, 03:23 PM
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#14
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Dryer sheet wannabe
Join Date: Nov 2020
Location: Culpeper
Posts: 11
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I recently received notification about a new Vanguard ETF. It might be an option to look at. Here’s a short description of the fund.
The Ultra-Short Bond ETF will invest in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities, including investment-grade credit and government debt.
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01-21-2021, 03:49 PM
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#15
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Full time employment: Posting here.
Join Date: Apr 2005
Posts: 807
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Quote:
Originally Posted by Djwil296
I recently received notification about a new Vanguard ETF. It might be an option to look at. Here’s a short description of the fund.
The Ultra-Short Bond ETF will invest in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities, including investment-grade credit and government debt.
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Good thread about this new fund on the Bogleheads forum:
https://www.bogleheads.org/forum/vie...?f=10&t=336977
As is mentioned late in the thread expected yields on this fund are going to be in the ~.50% range - i.e. what you can easily get from an online savings MM fund that (unlike these Vanguard ETFs and funds) is FDIC insured. No free lunch anywhere but the fact that they're doing this speaks volumes about the kind of desperation for yield out there.
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01-21-2021, 05:24 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2013
Posts: 11,078
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Three year MYGA?
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01-21-2021, 06:18 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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^^^ That is a possibility.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-21-2021, 06:23 PM
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#18
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Recycles dryer sheets
Join Date: Jun 2014
Location: Syracuse
Posts: 370
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Would any of you have a good source to learn about MYGAs? I am not familiar with them and would want to understand them before making any moves....wow Peter Lynch still speaking to me after all this time lol
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01-21-2021, 07:18 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: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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https://public-static-content.bluepr...uity_Guide.pdf
MYGA stands for Multiple Year Guaranteed Annuity. They are the insurance world's version of a CD.... rate guaranteed for a fixed term. The gotchas are that they tend to have significant surrender charges. For example the NYL product has a 7% surrender charge so if you need to get your money before the end of 3 years then it'll cost you. They typically allow up to 10% to be withdrawn without penalty annually.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-22-2021, 07:51 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Nov 2006
Posts: 1,635
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Quote:
Originally Posted by SunnyOne
Would any of you have a good source to learn about MYGAs? I am not familiar with them and would want to understand them before making any moves....wow Peter Lynch still speaking to me after all this time lol
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I purchased a couple of Mass Mutual MYGAs (through Fidelity) last year and have been pleased. Pretty simple and straight forward. Just make sure you won't need the money during the term, otherwise you'll pay more of a penalty than you would with a CD.
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