Author Topic: Anyone just go Stock + CD Ladder?  (Read 1569 times)

eav

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Anyone just go Stock + CD Ladder?
« on: November 19, 2018, 07:41:37 PM »
Hi all!

Iím not quite at the point yet, but since my assets are growing, Iím looking at what my long-term plan should be. Bonds have honestly always alluded me. I own a couple shares (>1% of my AA) in iShares Total Bond Index, and itís done nothing. I really donít want to put any more money into it. I have not given bonds a chance, but I donít understand them. If anyone can enlighten me to a great bond strategy, it would be appreciated. I just want to see some return, or i feel like I'm wasting money!

With CDs offering a guaranteed return, granted a loss of liquidity, Iím currently liking that more as an option. I would do a 5-year CD ladder with possibly starting with up to $25,000 and just keep renewing them and adding 1k to them as they mature and renew.

The Citizens Access CD ladder is very enticing: https://www.citizensaccess.com/cd-ladder/overview.html

Is anyone using this as a strategy? I basically either need to make up or break up with bonds.

COEE

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Re: Anyone just go Stock + CD Ladder?
« Reply #1 on: November 20, 2018, 06:37:12 AM »
CD's are essentially bonds.  When you buy a CD then you are agreeing to loan your money for a set amount of time at an agreed upon interest rate to a bank.  When you buy a bond then you are agreeing to loan your money for a set amount of time at an agreed upon interest rate to the government or corporate entity.

Do you see the difference?  There really is none.

CD's, bonds, and bond funds may lose 'value' temporarily during periods of rising interest rate, like we are currently in.  You only lock in those losses if you sell before maturity or before the 'average duration' within you fund.  Google "Bond interest rate risk".

The problem with CD's is that they usually return less than bonds in the long term.  Even today. 

Code: [Select]
term       US Treasury       Ally CD       CapOne CD     Marcus CD    Barclay's CD
3 mo          2.38             0.75            -             -            0.35
6 mo          2.52             1.00           0.60         0.60           0.65
12 mo         2.66             2.65           2.60         2.55           2.55
2 yr          2.79             2.60           2.70         2.60           2.60
5 yr          2.87             3.10           3.10         3.10           3.10
10 yr         3.06               -             -             -              -
20 yr         3.22               -             -             -              -
30 yr         3.32               -             -             -              -

The only term that beats the treasury is the 5-year, and it's probably not that great of a buy right now.  And when you factor in taxes, the treasury probably comes out ahead (treasuries are not taxed at state and local levels). 

There's more to consider than the interest rate though.  Liquidity is one, no state income tax on Treasuries is another, if held in a retirement account (bond funds, usually) then there are additional tax benefits.

I will probably never buy a CD.  I don't see the point.

frugaliknowit

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Re: Anyone just go Stock + CD Ladder?
« Reply #2 on: November 20, 2018, 08:38:08 AM »
I had been thinking of going the CD ladder route last year.  Now I understand bonds role better than I used to.  Bonds role is mostly to stabilize a portfolio.  This becomes more important with age.

I found this podcast very informative:  https://paulmerriman.com/cds-vs-bonds-and-other-important-questions/

2Birds1Stone

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Re: Anyone just go Stock + CD Ladder?
« Reply #3 on: November 20, 2018, 09:49:47 AM »
I have a good chunk of my portfolio in a CD Ladder, I have 1, 2, 3, and 5 year CD's.......the 5 year was purchased 2 years ago and pays little compared to current rates. I need to break that one and re-purchase.