Any New Ideas - Best CD interest

[Mulligan]

Thanks for the inputs. Appears we are all destined to adjust to living with
lower rates for the foreseeable future.

I believe in the fact there is no free lunch and no absolute safe guaranteed high yield. However with that being said, I closed out all my CDs and IBonds and rolled them mostly into 6-6.5% investment grade utility preferreds. Outside of '09 short crash the ones I have mostly stay right around par. One issue I own CNLPL "crashed" all the way down to around $42 ($50 par) in '09. Hasnt missed a payment since issued back in the 1960s. Of course if you believe the 10 year Treasury is going to 6-7% these type of issues will take a beating on their stock price. Plus, you cant go in and buy these types with a 100k chunk at a time either.


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[ETFs_Rule]

Will have to reinvest CD's maturing next year. (7yr@ 4%). Funny, 6 years ago, Financial Advisors, were saying, DO NOT GO LONG. Do not buy long term CD's.

Advice, was, interest rates will rise shortly, So buy short term. Did not
take there advice. Here it is 6 years later. Interest rates are lower, and
still have not gone up. Actually, have fallen.

How are other's handling this situation?

Putting money in CD's in not investing. You have to invest (in stocks and bonds).

 

[jim584672]

I believe in the fact there is no free lunch and no absolute safe guaranteed high yield. However with that being said, I closed out all my CDs and IBonds and rolled them mostly into 6-6.5% investment grade utility preferreds. Outside of '09 short crash the ones I have mostly stay right around par. One issue I own CNLPL "crashed" all the way down to around $42 ($50 par) in '09. Hasnt missed a payment since issued back in the 1960s. Of course if you believe the 10 year Treasury is going to 6-7% these type of issues will take a beating on their stock price. Plus, you cant go in and buy these types with a 100k chunk at a time either.


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Nice alternative idea. I have some in PFF, while very liquid the .47% expense ratio could be better. Yields about 6%.

Do you know of a site just for these preferreds? Your example looks very thinly traded. Would be nice to escape the annual expense of the ETF.

 

[Dash man]

Putting money in CD's in not investing. You have to invest (in stocks and bonds).

I disagree. It's just another option in an asset allocation. Many financial advisors group CDs in with bonds rather than cash. A CD is like a low risk bond where you put in your money for a percentage return. Bonds are the same if you hold to maturity, but they have more risk of lowered values if interest rates increase, along with a possible gain, if the bond must be sold prior to maturity.

 

[jim584672]

Remember in the early 1980s CDs @ 14%! Wow.

 

[MooreBonds]

Do you know of a site just for these preferreds? Your example looks very thinly traded. Would be nice to escape the annual expense of the ETF.

Quantumonline.com

 

[MichaelB]

Quantumonline.com

+1. Excellent resource for preferreds.

 

[Mulligan]

Nice alternative idea. I have some in PFF, while very liquid the .47% expense ratio could be better. Yields about 6%.

Do you know of a site just for these preferreds? Your example looks very thinly traded. Would be nice to escape the annual expense of the ETF.

MooreBonds is correct. Though some are not directly listed and you have to enter the common stock ticker symbol then hit the link to "other securities from this parent company. For example CNTHP and CNLPL are couple of preferreds from ES ( Eversource, used to be Northeast Utilities). The preferreds were issued when Connecticut Power and Light were a stand alone company, currently yielding around 6.2%. BGE-B is a trust preferred that was issued under Baltimore Gas and Electric, and is now under EXC (Excelon). Most of these types are "fenced in utility preferreds" which has provisions that keep the parent company from raping the bought out public utility since they now own the common shares.
Yes, I like the no expense ratios from purchasing. Make sure you study them a bit and put a limit order in. Usually you only want to buy a few hundred shares at a time to not "move the market". Most of my money is in about 6 of them and I add on occasion. If they haven't missed a payment in 50 years and are still financially strong today, that is enough confidence for me.

So yes if you want liquidity these aren't for you. Most shares were bought 20- 50 years ago and just stuffed in an institutional closet. The more liquid ones are down near the 5% range which doesn't appeal to me. I don't plan on ever selling though. The 15% tax provision is very beneficial to me as I was stuck giving 25% plus state tax on CDs.


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[Mulligan]

Jim, added thought in the ETF arena....My dad bought a few individual ones but did not want to get strung out on buying a lot of them so he split the bulk of his money on PFF and PFXF. PFXF is a good counter balance to PFF as it is non financial preferreds. PFF is mostly financial. There is some overlap but no banks. Plus, since they are too big they cant delve into the preferreds I buy so they also "stretch" the term preferred and buy some convertibles and such. But like PFF, you cant escape the expense fee which is about what PFF is.


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[brewer12345]

+1. Excellent resource for preferreds.

Agreed. That said, I do not even look at it these days. Too much duration in that stuff and not worth the risk IMO.

 

[aja8888]

MooreBonds is correct. Though some are not directly listed and you have to enter the common stock ticker symbol then hit the link to "other securities from this parent company. For example CNTHP and CNLPL are couple of preferreds from ES ( Eversource, used to be Northeast Utilities). The preferreds were issued when Connecticut Power and Light were a stand alone company, currently yielding around 6.2%. BGE-B is a trust preferred that was issued under Baltimore Gas and Electric, and is now under EXC (Excelon). Most of these types are "fenced in utility preferreds" which has provisions that keep the parent company from raping the bought out public utility since they now own the common shares.
Yes, I like the no expense ratios from purchasing. Make sure you study them a bit and put a limit order in. Usually you only want to buy a few hundred shares at a time to not "move the market". Most of my money is in about 6 of them and I add on occasion. If they haven't missed a payment in 50 years and are still financially strong today, that is enough confidence for me.

So yes if you want liquidity these aren't for you. Most shares were bought 20- 50 years ago and just stuffed in an institutional closet. The more liquid ones are down near the 5% range which doesn't appeal to me. I don't plan on ever selling though. The 15% tax provision is very beneficial to me as I was stuck giving 25% plus state tax on CDs.


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Thanks for the info on the preferred stocks. I am curious why you state you plan to never sell them?

 

[Mulligan]

Thanks for the info on the preferred stocks. I am curious why you state you plan to never sell them?

Trying to make money solely by trading these things is nearly impossible. I am in it for the yield and income. They are income vehicles. Presently though I just reinvest the income into buying more. In fact if they would go down in price it would not bother me as I would get a better yield with the new purchases.
I understand why people choose not to buy them, but I like the yield and if am going "long" on yield I would rather take 6.25% investment grade than 3-4% from some long bond or fund.
I liked a post one guy made on them... Its like being in line to get fed at the cafeteria. Who cares who gets feed first (bond holders) as long as there is enough food for everyone? I play it pretty safe and buy the ones who provide enough food for everyone to eat and I will wait my turn to be fed for the higher yield.


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[wolf]

I disagree. It's just another option in an asset allocation. Many financial advisors group CDs in with bonds rather than cash. A CD is like a low risk bond where you put in your money for a percentage return. Bonds are the same if you hold to maturity, but they have more risk of lowered values if interest rates increase, along with a possible gain, if the bond must be sold prior to maturity.

+1

 

[rayvt]

Do you have any debt? Let's say you have a mortgage at 4%. Paying down some principal with you spare cash will give you a guaranteed ROI better than any CD you can get nowadays.

I am employing this strategy with a mortgage on a rental property.

Paying down the principal on a loan has nothing in common with an ROI.

The clue is the words. ROI = Return On Investment. Paying down the principal balance of a loan isn't an investment, it's just ... paying down the balance. All it does is to pull in the final payment. And you don't have any additional money, like you do with an investment, you just eliminate the mortgage payment sooner --- 20-30 years from now.

 

[OAG]

Saying rates may never go up seems like saying stocks have reached a permanently high plateau.

I included "significantly" regarding CD rates. Have next to no expertise regarding the Stock Market but I guess that could be right too. Hope not as I will be placing a "significant" amount in the SM VTSMX/VTSAX and VFINX/VFIAX index funds.

 

[pletal]

Will have to reinvest CD's maturing next year. (7yr@ 4%). Funny, 6 years ago, Financial Advisors, were saying, DO NOT GO LONG. Do not buy long term CD's.

Advice, was, interest rates will rise shortly, So buy short term. Did not
take there advice. Here it is 6 years later. Interest rates are lower, and
still have not gone up. Actually, have fallen.

How are other's handling this situation?

I don't thinks rates are going to go anywhere fast. Been buying brokered cd's 10 years , Goldman Sachs 3.1 percent. Interest paid in cash account , using that to buy other CDs as time move forward.

 

[Nords]

How are other's handling this situation?

We keep two years' expenses (net after all other income) in cash-- the first year of cash is in a money market account and the second year of cash is in three-year CDs. "Three-year" CDs because if we need to break into them, the early-redemption penalty is only six months instead of one year.

My pension income is reliable enough that I don't feel the need to keep much of our portfolio in cash. (Two years is good enough to get through most bear markets.) Since we don't keep a lot in cash, we don't have to chase yield.
Chasing yield - Military Guide

That's the real danger with trying to maximize the interest on cash: the higher interest is always accompanied by higher risk. However the purpose of cash is liquidity and buying stuff at a discount, so it's acceptable to lose a little each year to inflation when you can negotiate a 10%-20% discount for cash.

 

[Hyper]

We've only had local CD's. Are the cd's such as through Synchrony and other online banks safe to purchase or such as buying a cd in a bank on the other side of the country from us? Basically just make sure they are FDIC insured??

 

[brewer12345]

We've only had local CD's. Are the cd's such as through Synchrony and other online banks safe to purchase or such as buying a cd in a bank on the other side of the country from us? Basically just make sure they are FDIC insured??

FDIC insured is FDIC insured. Just make sure you read the fine print on surrender penalties, etc. That goes for local banks and internet.

 

[Dash man]

We've only had local CD's. Are the cd's such as through Synchrony and other online banks safe to purchase or such as buying a cd in a bank on the other side of the country from us? Basically just make sure they are FDIC insured??

Yes, they are FDIC insured. Synchrony Bank used to be known a GE Capital Retail Bank and have been around a while. You can set up ACH transfers with other banks to move your money around. They're customer service has been very good.