CD vs Market

[Raygun99]

Just looking for opinions. Vanguard offers FDIC brokered CDs currently 5 year at 5.5% Callable 1 yr or 4.6% Non Callable. They also have 7 year and 10 year similar rates. Do you think this is wise for age 73 IRA money? Can't see a lot of growth over next 3 years in market (my Opinion)

[Car-Guy]

I'm about the same age here. Personally I don't buy any CD's with terms beyond three years, callable or not. (And I have bought a lot of them in the past 18mos.) From my POV, at my age, I just don't want my money tied up longer than that. But your view and circumstances may be different.

Also, I don't like the uncertainty of callable's, but I can see where they could have a place in someones portfolio.

[Chuckanut]

I have no strong feeling either way on where interest rates or the stock market will go over the next three to five years. I can’t tell you what to do, but I will tell you what I recently did with money destined for the safe and secure part of my asset allocation.

Like you I was stuck between the higher rate but callable certificate and the lower rate call protected CD. I split my money in half, and bought one callable at about 5.5% and one call protected at 4.6%. Both were five year CDs. IMO, diversification should provide me with the best chance of making some good income while not taking the risk that interest rates may go down and stay down for most of the 5 years.

[pb4uski]

I think a 0.9% premium for callable vs noncallable is pretty fair.

I bought a 6.125% agency issue the other day... matures in 2028 but only 3 months of call protection. I also bought a couple A rated 3-year corporates at 6% that have a year of call protection.

[Rianne]

Quote:

Originally Posted by Raygun99 Just looking for opinions. Vanguard offers FDIC brokered CDs currently 5 year at 5.5% Callable 1 yr or 4.6% Non Callable. They also have 7 year and 10 year similar rates. Do you think this is wise for age 73 IRA money? Can't see a lot of growth over next 3 years in market (my Opinion)

We're not comparing CDs and the market. Plan to stay at 50/45. Our entire tIRA is in noncallable CDs and treasuries earning ~4-4.5%, but we're staying in the market long-term. I'm not sure I would predict growth in the market. But we're 65. That's a tough question. Will interest rates be this good again or will they get better? If you went long in CDs and got 5%, that's pretty safe.

[COcheesehead]

Know your numbers.

What return makes your plan work?
Do you have inflation protection outside of fixed income or are you over funded as your inflation hedge?

The answers really can clarify your next step.

Right now there are a lot of good “bird in the hand” options in fixed income.

[GhostofTomJoad]

For safety or ballast, I think it makes sense to start a CD-ladder from short and into intermediate and long-term CDs. Five years would be my practical maximum. I think it's smart right now to grab all the duration you can. This is for SAFETY, not GROWTH.

...And listen to me give advice! I'll never have the spare cash to do this very thing. I'm always fully invested. I'm 33% in bonds these days, enjoying the junk-yields. But I have a wall between IRA and brokerage. I'm ever-so-slowly growing the brokerage account, to make more $$$ available for the wife, without the T-IRA strings and RMDs. She's much younger, so there is a special chart for the likes of us from the IRS which is advantageous, when she inherits it all. A Roth conversion makes no sense. We pay no 1040 taxes.
I'm 69.