Cash Investing: A Little CD and Treasury Market Sense

[CalGalTraveler]

Since interest rates are increasing, I thought I would start a thread on cash investing: i.e. CDs, Treasury, Bond investing. I went shopping today - but not for a timeshare! - and built a CD and Treasury Ladder for 6 months to 5 years. Here is a list of rates below from a popular brokerage:

So far:

1) Bought the maximum iBonds for myself and my spouse which are running at about 9%

2) Bought a ladder of CDs and Treasuries (6 months - 5 years) locking in a 4%+ rate while preserving principle. We are nearing retirement and all the pundits say that you should withdraw 4% a year from investment earnings. What a great way to lock in those returns to hedge our portfolio.

3) One of my CDs is a 5 year callable for 4.7% (!) It guarantees the 4.7% for at least the first 6 months before it can be called monthly. I figure if it doesn't make it to 5 years that is fine. 4.7% is more than 6 month treasuries paying 3.78% (a full percentage point margin). Most likely it wouldn't get called until after the first or second year so it still beats buying shorter term instruments. The biggest risk of this CD is if the rates jump to 1980s level 10%+ because I would be locked in at 4.7% but this is why I built a ladder with shorter non-callable maturities. Callable CDs seem to pay higher so wondering if it might be worth buying more with shorter durations to hedge with the non-callable CDs and treasuries?

4) I am buying these CDs and Treasuries in brokerage accounts where I have cash that was sidelined in retirement accounts. These will not be taxed until I withdraw the money (or in the case of Roth 401k - never taxed) I still have more than half of the portfolio still invested in the stock market (ouch!), but this will come back someday.

I have not had a chance to look at bank rates yet. There may be some gems out there.

5) I was considering buying more timeshares but I figure if I invest $100k at a 4% return, that would earn guaranteed $4000 / year which could be used for rentals or paying MF on existing timeshares i.e. making vacations free. Our principle is also preserved. Much less risk and hassle than buying and renting a timeshare especially since MF increases with inflation are unknown.

Has anyone else been pursuing cash investing? What are your great finds and strategies for high interest rates? Is there a bank or credit union offering high rates? What about bonds and municipals? It has been a long time since any of these have been worth investing in.

 

[DrQ]

Prior to the big dip, I invested in a 5yr annuity that pays 2.5%/yr and allows me to take out 10% each year without penalty.

My first anniversary is approaching in Nov and we may be be swapping that 10% into something else.

 

[Ralph Sir Edward]

The question is how high is up? Will the Fed keep on squeezing- or not? People on Wall Street get paid 7 figures (and UP!) to answer those questions for the Big Boys.

If you think rates have peaked, you lengthen your maturities. If you think they are going to keep going up, you shorten your maturities.

Are you a trader/timer? Market bottoms usually occur once the Fed starts lowering interest rates. There is usual a gap from a few days to a few months, before the market reacts. How easy will it be to get your money available to buy stocks when the time comes?

Food for thought. . .

 

[dago]

I purchased 2 $10,000 I Bonds @ 9,6.

 

[Superchief]

Check out your local credit unions because they often offer attractive CD rates. My wife works for a credit union that offered 5 yr. bump CD's a few years ago. It had an attractive rate plus the option to 'bump' to a higher interest rate if they went up. It could be 'bumped' up to 3 times.

 

[DancingWaters]

Since interest rates are increasing, I thought I would start a thread on cash investing: i.e. CDs, Treasury, Bond investing. I went shopping today - but not for a timeshare! - and built a CD and Treasury Ladder for 6 months to 5 years. Here is a list of rates below from a popular brokerage:

View attachment 66171

So far:

1) Bought the maximum iBonds for myself and my spouse which are running at about 9%

2) Bought a ladder of CDs and Treasuries (6 months - 5 years) locking in a 4%+ rate while preserving principle. We are nearing retirement and all the pundits say that you should withdraw 4% a year from investment earnings. What a great way to lock in those returns to hedge our portfolio.

3) One of my CDs is a 5 year callable for 4.7% (!) It guarantees the 4.7% for at least the first 6 months before it can be called monthly. I figure if it doesn't make it to 5 years that is fine. 4.7% is more than 6 month treasuries paying 3.78% (a full percentage point margin). Most likely it wouldn't get called until after the first or second year so it still beats buying shorter term instruments. The biggest risk of this CD is if the rates jump to 1980s level 10%+ because I would be locked in at 4.7% but this is why I built a ladder with shorter non-callable maturities. Callable CDs seem to pay higher so wondering if it might be worth buying more with shorter durations to hedge with the non-callable CDs and treasuries?

4) I am buying these CDs and Treasuries in brokerage accounts where I have cash that was sidelined in retirement accounts. These will not be taxed until I withdraw the money (or in the case of Roth 401k - never taxed) I still have more than half of the portfolio still invested in the stock market (ouch!), but this will come back someday.

I have not had a chance to look at bank rates yet. There may be some gems out there.

5) I was considering buying more timeshares but I figure if I invest $100k at a 4% return, that would earn guaranteed $4000 / year which could be used for rentals or paying MF on existing timeshares i.e. making vacations free. Our principle is also preserved. Much less risk and hassle than buying and renting a timeshare especially since MF increases with inflation are unknown.

Has anyone else been pursuing cash investing? What are your great finds and strategies for high interest rates? Is there a bank or credit union offering high rates? What about bonds and municipals? It has been a long time since any of these have been worth investing in.

Love the insight. Can the interest rate go down after 6 months or is it locked in for 5 years?

 

[Brett]

I also "ladder" with CD's and bonds using Charles Schwab

 

[Sugarcubesea]

So far:

1) Bought the maximum iBonds for myself and my spouse which are running at about 9%

2) Bought a ladder of CDs and Treasuries (6 months - 5 years) locking in a 4%+ rate while preserving principle. We are nearing retirement and all the pundits say that you should withdraw 4% a year from investment earnings. What a great way to lock in those returns to hedge our portfolio.

We have done the following:


1) Bought the maximum i Bonds for myself and my spouse.

My next task is to purchase a ladder of CDs and Treasuries --- I'm looking for a 4 year CD that pays 4.6%, I'm planning on retiring in 2027 and want to get some ladders in place....

 

[CalGalTraveler]

Love the insight. Can the interest rate go down after 6 months or is it locked in for 5 years?

It is locked for that CD, however if interest rates decline they can call the CD and pay interest up to the date of termination. You would then need to find another CD or investment which will be at current (lower) interest rates.

I am new to callable CDs and so I am testing out callable CD but not putting all eggs in one basket. I believe that the banks that hold these CDs will not act right away when rates decline because they will have to hold their investment meetings to approve a call, and banks don't move quickly. These CDs also currently pay more than shorter term instruments so I am still ahead compared to other short term instruments. However if others have experience I would love for them to comment.

Longer term if rates go higher than 4.7% is where the risk resides because you are locked in at 4.7%. However I have built a ladder with maturing shorter instruments that will provide cash to invest in higher rate instruments so you can increase your average net return.

Besides almost 5% for 5 years with preservation of principle was hard to pass by.

 

[CalGalTraveler]

I also "ladder" with CD's and bonds using Charles Schwab


View attachment 66189

I like such tools at Schwab because it makes it easy to compare and decide quickly. How do the other brokerages compare?

And how do the brokerage CDs and Treasury offerings compare to Bank/Credit Union and Government issues of Treasuries? Historically I thought the brokerages were weaker than the banks directly, now it seems they have become more competitive?

 

[pedro47]

I purchased 2 $10,000 I Bonds @ 9,6.

Ditto, we did the same.

 

[CalGalTraveler]

Are you a trader/timer? Market bottoms usually occur once the Fed starts lowering interest rates. There is usual a gap from a few days to a few months, before the market reacts. How easy will it be to get your money available to buy stocks when the time comes?

Food for thought. . .

Great thoughts. I missed this last round to get out of the stock market early so now it is too late to pull out and will wait it out. Ironically some of my favorites that I like to pick up on dips, such as United Health are still faring well.

When the stock market was booming. I struggled with keeping our equities at or below 60% even without additional investment. So our cash side accumulated with our monthly retirement investing. This is what I am investing in CDs and Treasuries. Even if the market bottoms, I keep a stash in a money market fund (currently paying 2.7%) so can buy stock if the opportunity arises. I guess money market funds are the "bottom run" of my ladder. The rest is the 40 - 50% fixed cash/bond portion of our portfolio so would never be in the stock market.

 

[pedro47]

Since interest rates are increasing, I thought I would start a thread on cash investing: i.e. CDs, Treasury, Bond investing. I went shopping today - but not for a timeshare! - and built a CD and Treasury Ladder for 6 months to 5 years. Here is a list of rates below from a popular brokerage:

View attachment 66171

So far:

1) Bought the maximum iBonds for myself and my spouse which are running at about 9%

2) Bought a ladder of CDs and Treasuries (6 months - 5 years) locking in a 4%+ rate while preserving principle. We are nearing retirement and all the pundits say that you should withdraw 4% a year from investment earnings. What a great way to lock in those returns to hedge our portfolio.

3) One of my CDs is a 5 year callable for 4.7% (!) It guarantees the 4.7% for at least the first 6 months before it can be called monthly. I figure if it doesn't make it to 5 years that is fine. 4.7% is more than 6 month treasuries paying 3.78% (a full percentage point margin). Most likely it wouldn't get called until after the first or second year so it still beats buying shorter term instruments. The biggest risk of this CD is if the rates jump to 1980s level 10%+ because I would be locked in at 4.7% but this is why I built a ladder with shorter non-callable maturities. Callable CDs seem to pay higher so wondering if it might be worth buying more with shorter durations to hedge with the non-callable CDs and treasuries?

4) I am buying these CDs and Treasuries in brokerage accounts where I have cash that was sidelined in retirement accounts. These will not be taxed until I withdraw the money (or in the case of Roth 401k - never taxed) I still have more than half of the portfolio still invested in the stock market (ouch!), but this will come back someday.

I have not had a chance to look at bank rates yet. There may be some gems out there.

5) I was considering buying more timeshares but I figure if I invest $100k at a 4% return, that would earn guaranteed $4000 / year which could be used for rentals or paying MF on existing timeshares i.e. making vacations free. Our principle is also preserved. Much less risk and hassle than buying and renting a timeshare especially since MF increases with inflation are unknown.

Has anyone else been pursuing cash investing? What are your great finds and strategies for high interest rates? Is there a bank or credit union offering high rates? What about bonds and municipals? It has been a long time since any of these have been worth investing in.

I liked your approach.

 

[singingcowgirl]

Has anyone else been pursuing cash investing? What are your great finds and strategies for high interest rates? Is there a bank or credit union offering high rates? What about bonds and municipals? It has been a long time since any of these have been worth investing in.

I have a muni bond portfolio I started over 20 years ago, and have taken the same monthly payment from it for the same amount of time.

There's a lot of differences between CDs and bonds. Bonds are sold on the open market, and the price fluctuates with the interest rate. If you hold it until it matures, you get par value for the bond (usually $100), regardless of what you paid for it. There are a lot of other differences, too.

CDs are pretty straight-forward in that you put in so much money and get that much money plus interest when it matures.

The fed says they want to get interest rates up to 5%, so while you're building your ladder, you might want to temporarily put more in very short term than further out.

 

[needvaca]

Last week, I bought some 2 yr treasuries at 4.25%. they are also state tax exempt,
maxed out my Ibond purchases in January.

good place to park excess cash

 

[GetawaysRus]

I'm also a long time mini bond investor because I live in a high tax state. I buy individual munis and don't dabble with muni bond mutual funds.

Just be aware that the tax free income from muni bonds is counted when Medicare calculates your MAGI (Modified Adjusted Gross Income). So the tax free income from munis can very possibly push you into a higher Medicare IRMAA bracket.

And the same is true for regular interest paying accounts. It's nice that we're getting a higher interest rate on our savings, but be careful about your future Medicare costs. Higher Medicare fees can easily wipe out much or all of your gain from your income investments.

 

[emeryjre]

Great thoughts. I missed this last round to get out of the stock market early so now it is too late to pull out and will wait it out. Ironically some of my favorites that I like to pick up on dips, such as United Health are still faring well.

When the stock market was booming. I struggled with keeping our equities at or below 60% even without additional investment. So our cash side accumulated with our monthly retirement investing. This is what I am investing in CDs and Treasuries. Even if the market bottoms, I keep a stash in a money market fund (currently paying 2.7%) so can buy stock if the opportunity arises. I guess money market funds are the "bottom run" of my ladder. The rest is the 40 - 50% fixed cash/bond portion of our portfolio so would never be in the stock market.

What money market fund are you using. Is it really paying 2.7%. TIA

 

[pedro47]

Last week, I bought some 2 yr treasuries at 4.25%. they are also state tax exempt,
maxed out my Ibond purchases in January.

good place to park excess cash

I liked that they are state tax exenot.

 

[dago]

And the same is true for regular interest paying accounts. It's nice that we're getting a higher interest rate on our savings, but be careful about your future Medicare costs. Higher Medicare fees can easily wipe out much or all of your gain from your income investments.

It will also affect the amount of your SS that will get taxed

 

[CalGalTraveler]

What money market fund are you using. Is it really paying 2.7%. TIA

Are there well-paying money funds at the other top brokerages?

 

[CalGalTraveler]

The fed says they want to get interest rates up to 5%, so while you're building your ladder, you might want to temporarily put more in very short term than further out.

Had not heard that. Thanks for sharing.

 

[PigsDad]

View attachment 66213

Are there well-paying money funds at the other top brokerages?

Fidelity Money Market Fund (SPRXX) has a 7-day yield of 2.79% (no minimum)

Fidelity has others with a higher 7-day yield as the minimum increases:
FZDXX 2.91% 100K minimum
FMPXX 3.03% 1MM minimum
FNSXX 3.07% 10MM minimum

Kurt

 

[Brett]

The 4% Rule for Retirement Is Back
Higher interest rates make it a bit safer to spend more money in retirement
https://www.wsj.com/personal-finance/retirement/the-4-rule-for-retirement-is-back-627ef287

"Thanks to higher interest rates and bond yields, it is likely safe for new retirees to spend 4% of their nest eggs in their first year of retirement, according to new research from Morningstar.

"Morningstar runs 1,000 simulations of future market conditions to find the spending rate that allows retirees to maintain a steady annual income, adjusted for inflation, without running out of money in 90% of those scenarios. The 4% spending rule emerged as the wealth-management industry’s standard advice for retirees in the 1990s, after research showed that starting at that rate would have protected retirees from running out of money in every 30-year period since 1926, even when economic conditions were at their worst "

 

[Carolinian]

Any of these investments assume the long term stability of the US dollar, which faces headwinds from things like our massive federal debt that is rapidly getting worse, and the possiblity of the US losing international reserve currency status in whole or in part. Anything that I hold that is dollar denominated is something I can get out of quickly.

All fiat currencies have some risk because many of them have the same problems. A friend of mine has a son who works in currency trading at a hedge fund describes the US dollar as currently "the least sick horse in line at the glue factory" but points out that the prognosis can easily change. The Obamacare legislation made many foreign banks allergic to having US citizens open accounts with them, so holding funds in other currencies is now difficult for American citizens. The Norwegian crown and the Polish zloty, along with the Swiss franc have better fundamentals than the dollar, but opening accounts in them can be difficult. Swiss government bonds until recently carried negative interest rates but still quickly sold out.

Some eastern European banks took no notice of the Obamacare rules on foreign banks and allowed Americans to open accounts. Many Romanian banks allowed accounts in US dollars, euros, and Swiss francs, as well as in Romanian lei. Using one of the stronger Romanian banks is one way to maintain an account in Swiss francs.

Next door in Moldova, there was one of the better plays in CD investing. The Moldovan lei was relatively stable against hard currencies, execpt for two blips that happened like clockwork every year when there were large exchanges of hard currencies into Molodovan lei which supply and demand factors caused the lei to gain several percent against hard currencies for a couple of weeks and then it returned to the usual range. You could time six month CD's to come due right when those predictable temporary foreign exchange fluctuations occured. Moldovan banks issued CD's in US dollars, euros, or Moldovan lei. Ten years ago, when US interest rates were in low single digits, Moldovan 6 month CD's carried 8-9% annual interest and CD's in lei 10-11% at the largest and most stable banks. When I was full time in eastern Europe, I knew a number of expats in both Romania and Moldova who played this angle regularly. Romania did not have anything as predictable on foreign exchange patterns.

 

[CalGalTraveler]

@Carolinian What do you suggest one do as an alternative?