Looking for some financial information on Fixed Income Investments

[ShokWaveRider]

I must preface this post with the fact I am not in the stock market and I do not want to jump in now as it seems to me with all the instability, that it may not be the best place to be in the future. This is my opinion of course and I could be wrong. However, I do not want to go there.

OK that said, I have a significant amount of money coming out of fixed income in late 2018 early 2019. > $1.5m 30% is pre-tax in and IRA, 70% is basically cash.

I am looking for a 5 year investment that can get 3%+ with VERY MINIMAL (No) Risk.

I do not know whether Pen Fed will bail me out with a another 3% CD Deal.

I was wondering what my options were and where to start looking as I am a year away for the actual headache becoming a migraine.

Thanks in advance.

 

[panacea]

I don't know that such an investment exists right now. 3% is something you'd historically be able to find in an intermediate term bond fund but with a risk of rising interest rates, that doesn't fit in with your "no risk" requirement.

If you're nervous about the stock market, a conservative mix of stocks and bonds can work nicely. A mutual fund like Vanguard Wellesley has stock exposure of 30-35% which is a higher income, lower volatility allocation. If stocks do well, you benefit. If bonds do well, you benefit. If stocks are down, bonds are typically up. If interest rates rise, bond prices go down but that's usually good for stocks. Just a thought... might be hard for someone who is zero tolerance for risk though.

 

[Meadbh]

I don’t think there is such an animal. You can get 3%, but not without risk.

 

[HillCountry]

What is the planned usage of the money? That may determine how it should be invested.

If really no specific purpusrpe, I think getting current five year cd at 2.35 might be just fine.

I would suggest you have some kind of ladder. This is like temporal diversification. The Cola increase lately may indicate inflation is finally coming back.

 

[Ready]

You may want to look for five year CDs that only have a six month early termination penalty. That way if rates rise after you lock them in, you can always pay the relatively small penalty and move them to a higher rate CD.

I don't think a risk free 3% return currently exists, but who knows where rates will be next year when you're ready.

 

[ShokWaveRider]

Remember the impending event is December 2018 / January 2019. I do use the funds for income. But have yet to start drawing down on the IRs. We also have other IRAs too that are getting 3%. That has been steady for the last 5 years. We do have a couple of hundred K. in Cash though for daily expenses.

 

[REWahoo]

I also have money in 3% PenFed CDs maturing in December of 2018.

I'll start thinking about what to do about a year from now. A lot can change between now and then, including better rates from Pen Fed to prevent the flight of what must be a boatload of money deposited in their institution.

 

[ace8]

I am looking for a 5 year investment that can get 3%+ with VERY MINIMAL (No) Risk.

30 year Treasuries are at about 2.9%. If you live and pay in a state/local that (SALT) taxes CD interest, it would be very similar to 3% FDIC CD in both yield and risk profile.

If the 5y window is important to you, PB4U will be along shortly to educate us a Bulletshares .

5y CD rates at 2.3 - 2.4% today.

 

[capjak]

Only thing I know of AND I WOULD NOT PUT THAT KIND OF CASH IN ONE OF THESE, but maybe 15% of cash or up to your states guarantee is a 5 year MYGA with an AMBEST "A" or better.

Current 5 year MYGA 2.8%

https://www.immediateannuities.com/deferred-annuities/

 

[OldShooter]

... I am looking for a 5 year investment that can get 3%+ with VERY MINIMAL (No) Risk. ...

I think some TIPS or a TIPS ladder will serve you well when you consider that your 3% goal is in nominal dollars that will be eroded by inflation and that TIPS willl protect you completely. Further, if we do get a substantial increase in inflation the value of the TIPS will rise disproportionately as frightened investors seek shelter. If we get an even larger increase, Treasury will stop selling TIPS in order to avoid pouring gasoline on a fire, so their value will rise even more. IMO TIPS are an extremely underappreciated option for fixed income investors.

One major possibility for increased inflation is a decline in the value of the dollar, something that will inevitably happen at some point because of the nation's debt. Within the next five years? I have no idea, but I'm not willing to take the risk.

Buy bonds direct from your broker/dealer or (better) on the auction. Do not waste money paying a mutual fund big bucks to do brainless clerical work for you.

 

[RenoJay]

Perhaps you can put most into a five year C.D. at the highest yield, and a little into real estate backed P2P lending such as LendingHome.com (where yields are expected to be ~8%.) between these two you should be able to reach your 3% goal.

 

[ShokWaveRider]

I also have money in 3% PenFed CDs maturing in December of 2018.

I'll start thinking about what to do about a year from now. A lot can change between now and then, including better rates from Pen Fed to prevent the flight of what must be a boatload of money deposited in their institution.

I am hoping they do the right thing too. I will just turn them over if they do.

 

[ShokWaveRider]

I think some TIPS or a TIPS ladder will serve you well when you consider that your 3% goal is in nominal dollars that will be eroded by inflation and that TIPS willl protect you completely.

Is there a limit on how much in TIPS you can buy at one time?

 

[OldShooter]

Perhaps you can put most into a five year C.D. at the highest yield, and a little into real estate backed P2P lending such as LendingHome.com (where yields are expected to be ~8%.) between these two you should be able to reach your 3% goal.

There are thousands of ways to increase yield by increasing risk. I would argue that a highly illiquid investment is one of the worst choices, particularly one in a highly immature and untested marketplace.

If the OP will take a little more risk, SAMBX is a candidate. We have done very well with it for the past three or four years.

 

[OldShooter]

Is there a limit on how much in TIPS you can buy at one time?

Not as far as I know. IIRC when we bought in 2012 or so, the purchase in one of the accounts was around $0.5M. I am talking about the real bonds, though, not the little savings bonds. When I looked at the savings bonds it was very briefly because they did not suit my needs at all.

Edit: Here's your answer: the limit for noncompetitive bids (i.e., us little guys) is $5M. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm And to clarify, I am suggesting that you have your broker buy on the auction, possibly charging a small fee, not that you would screw around using TreasuryDirect. Though that is an option at least for taxable accounts.

 

[OldShooter]

Is there a limit on how much in TIPS you can buy at one time?

Sorry to be posting like someone with ADD ....

One more thing to know, @ShokWaveRider, is that if you buy TIPS in a taxable account the yearly inflation increase in face value is taxable income even though your don't get any cash. There is a frequent argument to hold TIPS in tax-sheltered accounts for this reason, but whether paying these taxes from another source of cash is a big deal depends very much on one's personal situation.

 

[Dave J]

I also have some 3% PenFed CD's and I'd say come back 2 months before yours mature and ask again.3% may(I hope) be available by then.

 

[RunningBum]

Remember the impending event is December 2018 / January 2019. I do use the funds for income. But have yet to start drawing down on the IRs. We also have other IRAs too that are getting 3%. That has been steady for the last 5 years. We do have a couple of hundred K. in Cash though for daily expenses.

What are these other IRAs invested in to get 3%?

 

[pb4uski]

Play around with this tool. https://www.guggenheiminvestments.com/etf/resources/etf-bond-ladder

If I put each corporate at 8% and each high yield at 4%, I get:

Yield to Maturity 3.30%
Yield to Worst 3.07%
30-Day SEC Yield 2.83%
Distribution Rate 2.99%
Effective Duration 3.62 yrs
Holdings (#) 3752
Portfolio Range 2018 - 2026

The ERs are 24 and 40 bps for the corporate and high-yield versions, respectively... so the weighted ER would be ~28 bps.... which deducted from the 3.30% YTM would get you to a ~3% return (assumes that you buy at NAV).