Trade Government Bond Fund for CD?

[Al18]

Listed below are the average annual returns from a government income bond fund I own in a traditional IRA:
1 year: -1.20%
3 year: +0.19%
5 year: +0.76%
In a rising interest rate environment, I don't expect the government income bond fund to do better in the near future.

I'm thinking of selling this fund and buying a 3 or 5 year new issue CD thru Fidelity. 5 year CD's are paying just over 3.0% yearly interest.

I'm within a few months of FIRE, but no plans to touch this IRA for at least 5 years.

Any downsides to buying the CD?

 

[Dtail]

Listed below are the average annual returns from a government income bond fund I own in a traditional IRA:
1 year: -1.20%
3 year: +0.19%
5 year: +0.76%
In a rising interest rate environment, I don't expect the government income bond fund to do better in the near future.

I'm thinking of selling this fund and buying a 3 or 5 year new issue CD thru Fidelity. 5 year CD's are paying just over 3.0% yearly interest.

I'm within a few months of FIRE, but no plans to touch this IRA for at least 5 years.

Any downsides to buying the CD?

I have new issued brokered CD's in Fidelity. They are in a 3 yr laddered CD.
This investment replaced a portion of my bond portfolio. They are in my TIRA. Will only hold to maturity and not trade.
Perhaps consider a CD ladder, as IMHO the rates are still on their way up.

 

[OldShooter]

IMO govvie bond funds are particularly bad deals because you can buy bills, notes, and bonds directly on the auctions. Also there is no need for diversification in a govvie portfolio other than whatever you want to do with yields because none of the issues have any significant risk. So what is the manager doing to justify his fee?

Without actually checking, my guess is that the yields you got from the fund are less than what you would have gotten by just buying six- and twelve-month t-bills.

Finally, under $250K, CDs are govvies, with the full faith and credit guarantee implicitly via FDIC.

 

[Al18]

A laddered CD sounds like a good idea. Thanks

 

[njhowie]

A laddered CD sounds like a good idea. Thanks

It's the way to go at this time.

Also, don't go out too far by getting excited by the 3% yield at the 5-year mark - it is going higher. Keep the maturities relatively short-term and don't lock in to longer-term rates until they are high enough to warrant it. For 5-year, I'd say that point is between 3.5% and 4%.

Today, the 3-year is 2.9% and likely before the Fed hikes next month it will be 3%, and the 5-year will be at/above 3.25% at that time.

If you are only talking about small amounts of money, and will be buying more as rates trend higher, no big deal. If you're contemplating putting a significant amount into this, again, be cautious on the longer-dated maturities.