IRA - CD Ladder vs Treasury Ladder question

[rkser]

I am looking at doing either a CD vs Treasury Ladder with about $250k each in my & DW's IRA at Schwab,

I think FED may raise rates another 1 or 2 times max this year.

Which route to take ? please help me decide

Thankyou in advance.

 

[pb4uski]

IMO Treasuries and CDs are essentially interchangeable since both are full faith and credit of the US government and therefore credit risk free, so take the one with the highest yield for each rung of your ladder.

 

[Marc]

Agree with pb4uski; and you also need to decide what is going to be the longest rung on your ladder. Eventually, all of the rungs will have CDs or Treasuries that are each the longest rung and will probably mature periodically every time period equal to the shortest rung on the ladder.

I am going through the exact same analysis for my rollover IRA. I have most of my. fixed income in a total bond fund but thinking of moving a large chunk into a ladder to get more regular distributions (instead of reinvestments).

Marc

 

[Chuckanut]

Treasuries and FDIC insured CDs are interchangeable for the most part. Taxes are a issue for some people depending on their state of residence. How you build the ladder is more important.

FWIW, my original plan was to build a ladder out to 5 years using a lot of small investments. Once built, as each security matured I would replace it with a 5 year bond/cd and be happy. I might go out to 7 years if those rates got very juicy.

Then reality hit in the form of the inverted yield curve and callable cd/bonds in the area of four to five years. I did manage a few five year non callable CDs, but that window has slammed shut. And I managed to get a descent five year TIP bond.

Buying 5 year CDs and bonds non-callable at 4.5% when I can get comfortably over 5% on 6, 12, and 18 month alternatives is not wise. IMO, I am giving up too much today for a possible extra in a few years if rates go down and I still have plenty of locked in CDs at older rates. Will rates go down enough to make up for lower rates of current 5 year CDs? I don’t know. Money has time value, which makes the current yield curve my enemy at the moment.

The above is my thinking. Take what you wish and leave the rest.

 

[Car-Guy]

Plenty of discussions in this area on other active threads. But, if it were me, and I only had 250k in each account, I'd still go with CD's. You didn't say how long you wanted to go out with the ladders. 1yr, 2 yr, 5 yr. Regardless, if you think the Fed is going to raise rates 1 or 2 more times this year, (I do too) you might want to buy some very short term CD's now (3 to 6 mo) and then re-buy longer term CD's when they mature and after the Fed raises rates again.

OR, just park your money in a Schwab's Money Fund like SWVXX until you think the Fed is done raising rates and then buy/build your longer term CD ladders with those funds.

I like CD's that pay monthly so I can reinvest the interest along the way. Other than that, just be sure the brokered CD's you are buying are non-callable and FDIC insured. Most are and very easy to see/do at Schwab.


Nice thing about doing this in an IRA is you don't need to worry about any taxes.... YET!

 

[ShokWaveRider]

I think the potential for CDs with longer duration is more likely than treasuries, otherwise they are pretty much the same from a risk perspective, assuming one keeps CDs within the FDIC limits.

 

[rkser]

I am fixing to do this CD Ladder & getting out of BND which I see is losing more today & is now down for the year.
This is after a 13% hit last year, our IRAs which have nothing else but BNDs have seen some major losses lately.

 

[Dtail]

I am fixing to do this CD Ladder & getting out of BND which I see is losing more today & is now down for the year.
This is after a 13% hit last year, our IRAs which have nothing else but BNDs have seen some major losses lately.

Would be a good decision to get out of BND for starters.

 

[rkser]

Got the CDs completed in both our accounts & out of BND. Thankyou everyone.

I have got some cash left & they are charging a fee to buy the Vanguard VMFXX,
which Schwab Money Market Fund do you guys invest in/would you suggest ?

Initial deposit will be around $300k.

 

[pb4uski]

SWVXX. Almost 5% last time I looked.

ETA: Looked. 4.94%

 

[rkser]

Will use SWVXX, thanks

Pb4uski, thanks for your help at various times on this Forum, I regret not getting out of BND earlier when you advised me to, well… live & learn, better late than never.
I cannot thank you & the forum enough.