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Brokered CDs vs Treasuries
Old 07-19-2023, 11:10 AM   #1
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Brokered CDs vs Treasuries

I'm JUST starting to learn about buying individual bonds. I just made my first purchase of a T-Bill, 6 months out, (when I'll need it) yielding over 5%. I'm looking at Vanguard and they seem to have many brokered CDs yielding a good .5-.75% more than the same maturity T-Bond. I do see the higher yielding ones are callable, but even the regular non callable's are 4.7% ~ for 3 years. Why wouldn't I just do that?

Of course I may be answering my own question, but their info page does say that Vanguard doesn't make a secondary market, so even though they yield more, I'm guessing one must reconcile themselves to holding to maturity??

that said, here's what I'm trying to do:

1. set aside 100K for 2023 tax bill and solo 401K contribution. Term: 6-9 months. I've already done half in the tbill I mentioned.

2. Repeat #1 but for 2024. (will need April 2025).

3. Put rest in "ladder" possibly using TIPs out at the sweet spot 2028-2031. (real yield around 2%)

4. Then I have 144K in iBonds (I caught the wave WAY before they were cool, opening up an account for me, wife, daughter, 3 LLCs). Most are yielding 4-ish now. (I really need to update my spreadsheet ... so many dates ... I'm honestly not positive what they're yielding...might be a couple still earning 8.9%!) But I'm CONSIDERING leaving these be, but might there be an advantage to redeeming the ones that had the lower inflation kicker (.4) and reinvesting in the ones that have the .9% kicker??

Few different questions here I know, but I just sold a big apartment building and have another under contract...not used to having to deploy this much and this is the first time in most of my adult life that interest rates were actually something to think about!
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Old 07-19-2023, 11:23 AM   #2
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A few reasons:
1. Treasuries are more liquid. There is always a market for them and you will get the best market price at the time, quickly and easily.

2. The brokerages generally do not charge any commission on secondary market treasury purchases/sales.

3. Treasuries are free from state taxes

How much might the above be worth?
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Old 07-19-2023, 11:33 AM   #3
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Why don't you just make your 2023 401(k) contribution now? Then the tax on the growth would be deferred.
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Old 07-19-2023, 12:00 PM   #4
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Reply to Out-to-Lunch's question): Because we won't know (even close) how much we can contribute until 2023 taxes are done. We are landlords, and we convert our re income into earned income by paying ourselves differing amounts each year, depending on tax situation. we sold a 7 unit building that's more than doubled in value, plus depreciation recap, etc., this year, and will repeat next year. I'd just put full contribution in but there's a good chance our accountant will tell us not to. (When we convert RE income to earned income, suddenly FICA appears! Hence once we bump up against the next tax bracket, converting to earned income and socking into 401K actually costs more than allowing it to remain taxable RE income)
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Old 07-19-2023, 04:14 PM   #5
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Originally Posted by hotwired View Post
Reply to Out-to-Lunch's question): Because we won't know (even close) how much we can contribute until 2023 taxes are done. We are landlords, and we convert our re income into earned income by paying ourselves differing amounts each year, depending on tax situation. we sold a 7 unit building that's more than doubled in value, plus depreciation recap, etc., this year, and will repeat next year. I'd just put full contribution in but there's a good chance our accountant will tell us not to. (When we convert RE income to earned income, suddenly FICA appears! Hence once we bump up against the next tax bracket, converting to earned income and socking into 401K actually costs more than allowing it to remain taxable RE income)
Okay, thanks for taking the time to explain that to me. Best of luck with finding the right vehicle for you.
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Old 07-19-2023, 05:04 PM   #6
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I am just starting to look at secondary T-bills. How do brokerages make money on these? Is there a spread that they are playing?

Quote:
Originally Posted by njhowie View Post
A few reasons:
1. Treasuries are more liquid. There is always a market for them and you will get the best market price at the time, quickly and easily.

2. The brokerages generally do not charge any commission on secondary market treasury purchases/sales.

3. Treasuries are free from state taxes

How much might the above be worth?
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Old 07-19-2023, 10:31 PM   #7
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Quote:
Originally Posted by hotwired View Post
their info page does say that Vanguard doesn't make a secondary market, so even though they yield more, I'm guessing one must reconcile themselves to holding to maturity??


That does not sound right. Got a source for that? I found this…

https://investor.vanguard.com/invest...condary-market
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Old 07-19-2023, 10:33 PM   #8
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Originally Posted by Route246 View Post
I am just starting to look at secondary T-bills. How do brokerages make money on these? Is there a spread that they are playing?


Yes their is a spread usually expressed as bid and ask
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Old 07-20-2023, 08:08 AM   #9
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Also secondary trades isn’t it $1 commission per $1000 bond?
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