CD Rates Going Forward Something that does not discussed when considering CDs, is the importance of coupon frequency. In my taxable account I prefer shorter term CDs, withh monthly coupons, to ensure I have greater liquidity options. I use a lot of 6 month, 9 month, and 1 year CDs, which pay monthly coupons/dividends, although I will have a maturity date coupon for smaller CD amounts. I buy CDs in the 5 and 6 figure range, and it is not uncommon for the principal amount to drop thousands of dollars before the CD matures, and I do not want to be faced with potential needs for that principal, with heavy redemption penalties, in my taxable account. I try to maintain 7 or 8 of these shorter term CDs, with their maturity dates being staggered, so I am having CDs maturing quite frequently for liquidation options.
In my IRA accounts, I am fine with longer term CDs, with more semi-annual, intermixed with a few monthly coupon CDs. I do not have as much liquidity concerns, but I do need these CDs maturing every few months, because of a need for annual RMDs.
A few days ago I had a 6 month, 5 figure CD mature in my taxable account, and I chose to put it into my MM account with some big ticket insurance, travel, and holiday expenses occurring--I needed the liquidity. I also had a six figure CD, mature in my IRA account, and I have decided to reinvest that coupon back into a CD of one to two years, probably on a semi-annual or monthly coupon frequency. I am not as concerned about liquidity in my IRA, have no plans to redeem them, and if I should unexpectedly die in the middle of the term, I have survivor benefits for these CDs.
Others may not care as much about coupon frequency, but liquidity and accessibility factors are important to me, along with ensuring I have sufficient number of CDs to stagger their maturity dates for frequency.
CD Rates Going Forward Personally, I’m optimistic about balanced funds going forward. Bond and cash yields are higher than they have been in years, so they could contribute a lot to performance, rather than mainly providing ballast. My largest holdings are balanced funds. Fortunately, Fidelity has a number of good ones.
CD Rates Going Forward M* shows VWINX at 5.23% annually for 10 years. I hadn’t realized they hew to a 60/40 allocation until I looked tonight. Somehow thought it was more like 30/70. That 10-year average stacks up very well against similar funds. And it managed to shed less than 10% in a tough 2022.
Hardest thing is to try to anticipate how a fund like that might perform in an era of stable or rising interest rates. Funds holding bonds had a nice tail-wind over the past decade as rates fell - actually more like 2 decades.
CD Rates Going Forward +1
Thanks Larry. I haven’t followed VWINX too closely. But seems to be in a bit of a funk compared to earlier years.
CD Rates Going Forward "The focus should be on the minimum needed to achieve an income required in retirement."The focus should be on risk-adjusted performance and after that look for the income. Income by itself doesn't guarantee better performance or better risk/SD.
Example:
PIMIX in its glory days 2010-2013(
https://schrts.co/TRyXMDdV) was better than SPY, 2010-2018 better than many bond funds. In these periods it beat many funds for SD too.
On the other hand, PDI, managed by one of the best teams in the world, paid about 10% annually in the last 5
years but made less than 6% total in 5
years. RCTIX made a total of close to 23% and SPY made 71% (
https://schrts.co/vszPEmPD)
CD Rates Going Forward We bought a retirement home on Cape Cod in a spur of the moment decision, but we were smart enough to buy one less than 20 years old, built by a guy who over engineered everything ( It was his fifth personal build). BR on first floor, etc. IF we took more time we might have gotten something with a view etc, but we love the quiet neighborhood and new friends.
We passed on new dog, because my daughter moved here too and has two lovely dogs we use to get dog fix every several days. As we helped her buy her house, she frequently acknowledges that she will help us when we can't drive etc. Not including travel expenses, our income needs so far have been met with SS and dividends, even in high tax Massachusetts ( realestate taxes up 30% since 2018)
I became convinced that going into retirement is not the best time to have large equity exposure, given risk of serious bear market, so in 2015 to 2018 I cut stocks back and now am around 30%. The fact that rates shot up has made that decision easier obviously.
I think there is more downside ahead than upside, at least for US market and I don't mind making 5 to 6% rather than 20% if it means avoiding a 40 % loss in capital.
This sorta makes up for the fact that in CT for the last 30 years our house lost us lots of money, my salary was stagnant and we were taxed to the max.
But you can't focus on the past, and we are grateful we are both healthy, our kids are generally happy and educated and employed, although one is 1200 miles away.
The case for a soft landing in the economy just got another boost Following is a transcription of
a current NPR article:
Odds of a soft landing may have just gotten a little better.
The latest employment report from the Labor Department shows job growth held steady last month, boosting hopes that the Federal Reserve may be able to curb inflation without triggering a sharp jump in unemployment. U.S. employers added 187,000 jobs in July. While job growth has moderated, it hasn't come close to stalling, even after the Fed raised interest rates to the highest level in 22 years.
Here are five takeaways from the report.
Keeping up with population growth
Over the last three months, employers have added an average of 217,000 jobs per month. That's down from an average of 312,000 jobs in the first three months of the year, but it's still a healthy pace of growth.
Employers are still adding more than enough jobs each month to keep pace with population growth. Health care, hospitality and construction were among the industries adding jobs in July, while factories and transportation saw modest job cuts.
Historically low unemployment
The unemployment rate dipped to 3.5% in July from 3.6% the month before. The jobless rate has hovered in a narrow range for more than a year, hitting a half-century low of 3.4% in April.
Unemployment among African Americans hit a record low of 4.7% that month before rebounding to 6% in June — raising some concerns. In a relief, the African American jobless rate dipped again in July to 5.8%.
It's best to take those numbers with a grain of salt. The figures can be noisy because of the relatively small sample size.
People are earning more
Here's another bit of positive news: Wages are finally outpacing inflation, boosting workers' buying power. Average wages in July were up 4.4% from a year ago. Wage gains have moderated in the last year, but inflation has cooled as well, so workers' paychecks now stretch farther.
For the twelve months ending in June wages rose 4.4%, while prices climbed just 3%. (The inflation rate for the year ending in July will be released next week.)
Coming off the sidelines
The number of people working, or looking for work, increased by 152,000 last month. Importantly, the share of people in their prime working years (ages 25-54) who are in the labor force is growing. After hitting a two-decade high in June, it fell just slightly last month. That's important, because a growing workforce allows the economy to expand without putting upward pressure on inflation.
And it's good news for women
Before the pandemic, women briefly outnumbered men on U.S. payrolls. The ranks of working women fell sharply in 2020, when schools and restaurants were shuttered and many women were forced to leave work to look after family members or for other reasons. Women's share of jobs has been slowly recovering, however, thanks in part to job growth in health care and education — fields where women outnumber men. (In contrast, the male-dominated manufacturing industry lost 2,000 jobs last month.)
As of July, women held 49.9% of all payroll jobs, up from 49.8% the month before.
CD Rates Going Forward Thanks
@dtconroe,
Hope both of us are alive & well in 15
years.
Worth noting that money market funds back in the 70s and up to the 2007-09 financial crisis were less regulated and, while quite safe, took on more risk than they can today. So those 15-20% rates are a bit over-stated. Apples to oranges.
Doubt I’ll ever succumb to going all to cash. Admittedly, that would have been the smart move 18-20 months ago before the bottom fell out of equities. I enjoy investing and tracking a widely diversified portfolio too much to give it up (
a “fool’s errand” perhaps). But the bumps in the road are getting harder to ride out with age.
CD Rates Going Forward “ … in my lifetime as an investor, I haven’t seen cash yields this high ”
Gosh, I do remember earning 15-20% on money market funds during my early working years. :)
Along with that, the aisles in grocery stores (1970s) were often filled with store employees busy changing the previously marked prices to try and keep up with the ongoing increases. Without bar codes / scanners every bottle of ketchup or loaf of bread carried a marked price. One wonders if all this remarking itself contributed to the inflation rate.
No doubt. Cash at today’s 5% (+ -) looks very compelling, especially to the “over the hill” crowd.
I am also experiencing some degree of nostalgia with some of the recent posts, especially looking at the past 15
years. Around the 2000 to 2007 period, CDs were paying 5+% and I was shopping banks for the best CD rates and terms. Then the financial markets went into a crisis period, with banks closing, major business closings, and the government cutting rates, stimulating the economy, and trying to focus on financial stabilization and economic growth. I have never seen anything like the Covid
years, supply chain and manufacturing disruptions, and the renewed fight against inflation in the last few
years. 5+% CDs are back, we are fighting inflation again, but now I am in retirement, focused more on preservation of assets than accumulation of assets. I hope I am around for another 15
years so I can participate in investing philosophy, but the odds are that I will not be alive.
CD Rates Going Forward “ … in my lifetime as an investor, I haven’t seen cash yields this high ”
Gosh, I do remember earning 15-20% on money market funds during my early working years. :)
Along with that, the aisles in grocery stores (1970s) were often filled with store employees busy changing the previously marked prices to try and keep up with the ongoing increases. Without bar codes / scanners every bottle of ketchup or loaf of bread carried a marked price. One wonders if all this remarking itself contributed to the inflation rate.
No doubt. Cash at today’s 5% (+ -) looks very compelling, especially to the “over the hill” crowd.
CD Rates Going Forward @msf — I agree with you that the next 5-10
years could be very different. That’s why I’m maintaining significant holdings in bond and stock funds. However, in my lifetime as an investor, I haven’t seen cash yields this high and I doubt that it will continue for long. As soon as the Fed starts cutting rates, yields will drop. If that doesn’t happen for a while, I will keep buying CDs and Treasuries as issues mature.
My wife and I will start taking required minimum distributions before long, and it’s nice to have cash holdings we can rely on if stocks and/or bonds are down. BTW, I checked my watch lists for bond funds and very few have topped 5% over the past 15
years either— and those funds are all high yield funds that tend to drop in stock market crashes.
CD Rates Going Forward I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 years
That time frame includes a couple very bad
years for bonds during the FED rate hikes, so of course averages will be lower. If you look forward as the FED slows and completes their interest rate hikes, those statistics will likely change again for the better for income funds. Just my opinion. That change may have already happened. PIMIX has gained 5% in just the 1st half of 2023. Projection and extrapolating data is a risky business, but, what is to keep income funds from continuing that trend moving forward?
Not saying buying treasury or CD ladders now at 5% isn't a safe and prudent investment. It certainly is. Especially for retirees or those close to it. I've been doing it too. I do think, though, that when we look back a year or 2 from now, income funds may be winning the race.
CD Rates Going Forward I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 yearsNeither do I, but
some posters here do track or own BGHIX / BGHAX. This fund has returned at least 5.5% annualized over the past five
years.
Regardless, it's pointless to project past fixed income returns into the future. I don't know of any MMF that yielded 4% over the past several
years, yet many taxable MMF now yield at least that much. Rates have risen.
Unlike CDs, you can readily sell Treasuries if you need the cash prematurely.CDs that are purchased directly from an issuer often carry a put option. That is, you can redeem them (sell them back to the issuer) albeit with a penalty (strike price below par).
For example, you can save like a Senator via The United States Senate Federal Credit Union. It offers fixed rate share certificates (the CU equivalent of CDs) yielding
more than5% for up to 3
years. Though they come with substantial loss of interest early
withdrawal penalties.
CD Rates Going Forward Hey -- I am a dog expert: years of experience with a local shelter, served on the board of directors, became familiar with literally hundreds of dogs. Dogs don't care where they live, they care who they live with. You can assure your wife that your canine companion looks to you far more than it looks at where you are. You can trust me on this. Adjustment to a change in environment comes easily. Oh, they are so much more adaptable than we are.
CD Rates Going Forward You can lock in non-callable CDs with rates exceeding 5% up to two years and 4.5% up to five years. I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 years. What’s not to like about CDs yielding close to 5% or more? By waiting to see if rates go higher, you could be passing up an opportunity of the decade. If rates go higher, so what? Create a ladder and take advantage of the increase.
We’ve all seen over the past year that bond funds can be very, very risky and produce abysmal returns over long periods of time. Their returns do not necessarily provide ballast during periods when stocks drop. They can let you down when you need them the most.
CD Rates Going Forward There are a number of factors with "personal" complications, in making lifestyle/materialistic changes later in life. My wife and I are in pretty good health now, but who knows what tomorrow will bring. Moving/relocating has a lot of stress involved, but if you are going to do it, there is some logic to do it while you are in good health and mentally strong, while being "forced" to move in old age, is a scenario that sounds very repulsive to me. We bought a little dog about 4 years old, as an action to help my wife with age related depression, and now my wife is concerned that moving will be tough on her "child/dog" who loves our current home. When your pet's mental health becomes a major consideration, in old age decisions, I am not sure whether to laugh or cry about this decision! Somehow, I need to figure out investing decisons, with all of these more personal factors to be considered--our pet dog is uncooperative in letting us know what she thinks!
MARKETPLACE- Let's do the numbers on CEO pay Sad to think this transformation occurred during the years when I was employed full-time, 1970-2012. In my sector, higher ed, we fought like banshees to get a union recognized, then fought some more every 2-4 years to try to carve out some portion of the pie for our people. By the end of my career, I found myself telling an administrator acting as university president to never refer to me, or anyone else for that matter, as a “stakeholder.” The corporatization happened right under our eyes, and by the time I left, MI was a “Right to Freeload” state and my union was having a hard time finding the resources to do its work. If I and my colleagues held anything, it was the part of the stake with the caca on it.
CD Rates Going Forward My house is about 50 years old, and I am having to spend more and more each year on ACs, Hot Water heaters, plumbing, and a number of "surprises" outside of my house. I am starting to question whether we need to "sell the house" and buy smaller and newer house that requires less maintenance. My wife wants to stay in the house, and so I do have to manage our investments to keep up with the demands of owning an old home--liquidity has to be taken into account with my taxable account for these surprises. </blockquote
DT: I know what you mean about older homes. We have been in ours about 40 years. We have found out that after that long, things just wear out or need to be updated. We have talked about downsizing, but we do like it out here so we have decided to stay as long as we can.
CD Rates Going Forward @hondo. Same boat here. My wife has no interest in this stuff and I think more and more about a vastly simplified portfolio going forward. As my CD’s and treasuries mature it might be time to build a position in Wellesley or some such thing. At least in the IRA accounts. That and sell the boat
My house is about 50
years old, and I am having to spend more and more each year on ACs, Hot Water heaters, plumbing, and a number of "surprises" outside of my house. I am starting to question whether we need to "sell the house" and buy smaller and newer house that requires less maintenance. My wife wants to stay in the house, and so I do have to manage our investments to keep up with the demands of owning an old home--liquidity has to be taken into account with my taxable account for these surprises.
