Author Topic: 5.05% or trust in the market?  (Read 6489 times)

shimrod

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5.05% or trust in the market?
« on: March 18, 2016, 12:56:41 PM »
With 50% of yearly salary ready to be invested as a lump sum, and another 50% expected savings per year, would you invest in Ireland-based broad market funds, or in a 1.5 year certificate of deposit with 5.05% interest?

No other investments, no debt.

Jack

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Re: 5.05% or trust in the market?
« Reply #1 on: March 18, 2016, 01:08:41 PM »
First, are you talking about funds that invest only in Irish stocks, or funds held in an Irish brokerage that invest in worldwide stocks? (I'd be much more enthusiastic about the latter.)

Second, what are the terms of that CD? If you could get something with a variety of maturity dates (or which would still get pro-rated interest if you withdrew it early), that would be ideal because you could get your 5.05% interest in the interim while you dollar-cost-averaged into the market.

Mr FrugalNL

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Re: 5.05% or trust in the market?
« Reply #2 on: March 18, 2016, 01:09:46 PM »
Where do you find a 1.5 year certificate of deposit with 5.05% interest, and is it subject to a deposit insurance scheme? It sounds pretty damn amazing, which leaves me wondering if there's a catch.

onlykelsey

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Re: 5.05% or trust in the market?
« Reply #3 on: March 18, 2016, 01:11:18 PM »
Where do you find a 1.5 year certificate of deposit with 5.05% interest, and is it subject to a deposit insurance scheme? It sounds pretty damn amazing, which leaves me wondering if there's a catch.

OP may be posting from a less stable country experiencing inflation.  Rates are quite high in South Africa, for example: http://south-africa.deposits.org/

Jack

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Re: 5.05% or trust in the market?
« Reply #4 on: March 18, 2016, 01:23:41 PM »
OP may be posting from a less stable country experiencing inflation.  Rates are quite high in South Africa, for example: http://south-africa.deposits.org/

I'm going to take a wild guess that the country in question is Ireland. According to this, Ireland is currently experiencing slight deflation.

I, too, would be interested in where you can get a CD at 5.05% denominated in Euros. That would make me motivated to learn to understand foreign exchange risk...

onlykelsey

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Re: 5.05% or trust in the market?
« Reply #5 on: March 18, 2016, 01:25:36 PM »
OP may be posting from a less stable country experiencing inflation.  Rates are quite high in South Africa, for example: http://south-africa.deposits.org/

I'm going to take a wild guess that the country in question is Ireland. According to this, Ireland is currently experiencing slight deflation.

I, too, would be interested in where you can get a CD at 5.05% denominated in Euros. That would make me motivated to learn to understand foreign exchange risk...

This makes me seem like a total stalker (really, I'm waiting on client feedback at work and procrastinating), but OP earlier indicated they were from a" Johnny-come-lately non-Eurozone country".

mrpercentage

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Re: 5.05% or trust in the market?
« Reply #6 on: March 18, 2016, 01:38:12 PM »
CD

Unless you have a bright idea for certain stocks. If you mean stocks in general, I would go with he CD for 5%

Jack

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Re: 5.05% or trust in the market?
« Reply #7 on: March 18, 2016, 01:46:08 PM »
OP may be posting from a less stable country experiencing inflation.  Rates are quite high in South Africa, for example: http://south-africa.deposits.org/

I'm going to take a wild guess that the country in question is Ireland. According to this, Ireland is currently experiencing slight deflation.

I, too, would be interested in where you can get a CD at 5.05% denominated in Euros. That would make me motivated to learn to understand foreign exchange risk...

This makes me seem like a total stalker (really, I'm waiting on client feedback at work and procrastinating), but OP earlier indicated they were from a" Johnny-come-lately non-Eurozone country".

Hmm. Maybe Northern Ireland, then? Otherwise, I have no idea why the OP would be interested in Irish funds in particular. (And it really doesn't make much sense even then.)

shimrod

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Re: 5.05% or trust in the market?
« Reply #8 on: March 18, 2016, 04:04:36 PM »
I'm in Croatia.

The CD is HRK (Croatian kuna) denominated. My salary and prices are HRK-denominated as well. It's supposedly a policy of our national bank to keep HRK the exchange rate somewhat stable, but it's been falling:

https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-hrk.en.html

Inflation is reported barely above 0%.

The CD is a 5-year CD from 3.5 years back that still accepts payments. The current rate for new 3-year CD with similar terms would be 2%.

For funds, I was referring to Ireland-domiciled broad stock EFTs like Vanguard's, which I gather are a bit less profitable than Vanguard's US ETFs for US persons, but more profitable for non-US persons.

Seppia

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Re: 5.05% or trust in the market?
« Reply #9 on: March 18, 2016, 05:46:38 PM »
If you can get a guaranteed 5% yield (above inflation) in the short term I think that's unbeatable.
Sounds a bit too good to be true though

Mr FrugalNL

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Re: 5.05% or trust in the market?
« Reply #10 on: March 19, 2016, 02:09:30 AM »
If you can get a guaranteed 5% yield (above inflation) in the short term I think that's unbeatable.
Sounds a bit too good to be true though

Agreed on both points. I really have to wonder why this bank would still be offering that type of interest today. Do they need your money that badly?

By the way, the original post mentions no debt and no other investments. I take it you plan to keep at least a few months' living expenses in a savings account as an emergency fund?

WerKater

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Re: 5.05% or trust in the market?
« Reply #11 on: March 19, 2016, 05:10:22 AM »
With 50% of yearly salary ready to be invested as a lump sum, and another 50% expected savings per year, would you invest in Ireland-based broad market funds, or in a 1.5 year certificate of deposit with 5.05% interest?

No other investments, no debt.
Be careful. If a deal sounds too good to be true, it probably is.
On the off-chance that there is some english information on this deal online, would you post it here?

shimrod

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Re: 5.05% or trust in the market?
« Reply #12 on: March 19, 2016, 06:52:54 AM »
I'm on mobile, but it seems the English site only has the most general information:

https://www.pbz.hr/en/gradani/perspektiva-savings-hrk?sektor=Gradani

On the Croatian site, you can see the current numbers for the same product:

https://www.pbz.hr/hr/gradani/perspektiva-stednja-u-kunama?sektor=Gradani

WerKater

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Re: 5.05% or trust in the market?
« Reply #13 on: March 19, 2016, 10:40:42 AM »
OK, I tried with Google Translate:
https://translate.google.de/translate?hl=de&sl=bs&tl=en&u=https%3A%2F%2Fwww.pbz.hr%2Fhr%2Fgradani%2Fperspektiva-stednja-u-kunama%3Fsektor%3DGradani

But this only gives information on the current offers. You mentioned
The CD is a 5-year CD from 3.5 years back that still accepts payments. The current rate for new 3-year CD with similar terms would be 2%.
So, in this case you might actually have found a bit of a loophole (assuming you already have such a CD from back then). I suppose the bank did not expect back then thet interest rates would fall so dramatically. If I interpret this correctly (big caveat!), I would probably go for it.

chesebert

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Re: 5.05% or trust in the market?
« Reply #14 on: March 19, 2016, 02:59:00 PM »
How do us folks from the US take advantage of foreign currency denominated CDs without paying extremely high fee for exchange hedges? I thought you can't even get into hedging contracts unless you are talking about ten of millions of dollars.

I actually have the same question on foreign stocks, as a good amount of mine is denominated in Euros.

WerKater

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Re: 5.05% or trust in the market?
« Reply #15 on: March 20, 2016, 01:32:29 AM »
How do us folks from the US take advantage of foreign currency denominated CDs without paying extremely high fee for exchange hedges? I thought you can't even get into hedging contracts unless you are talking about ten of millions of dollars.

I actually have the same question on foreign stocks, as a good amount of mine is denominated in Euros.
I have some answers on this (shoprt version: Don't bother). But maybe you want to move this to another thread? It is pretty off-topic here.