Author Topic: Are CDs equal to Bonds?  (Read 2039 times)

Dee18

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Are CDs equal to Bonds?
« on: April 09, 2014, 04:31:12 PM »
I have been cautious (okay, overly cautious) in my investment allocation.  I am remedying that by increasing my investment in stock index funds.  But being financially conservative, older than most people on this blog, and a SWAMI, I am choosing to keep most of my money out of stocks. A significant chunk is in 3% cds.  My question is:  are bonds really better than cds?  A google search reveals that for the past three years Barclays U.S. Aggregate Bond Index average is 3.75%  If I am getting a guaranteed 3% (and 3.5% on a few older ones) is it worth giving up that guarantee for a slight potential increase in return?

warfreak2

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Re: Are CDs equal to Bonds?
« Reply #1 on: April 09, 2014, 04:47:33 PM »
A large part of the return from bonds is dividends, which won't show up on a price chart. Also, past returns over the last few years aren't going to be a reliable measure.

brewer12345

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Re: Are CDs equal to Bonds?
« Reply #2 on: April 09, 2014, 07:13:57 PM »
A (traditional, not brokered) CD is basically a treasury bond with an embedded put.  If rates go up, you surrender the CD to the bank, pay the penalty, and go chase higher rates.  If rates go down, you clip coupons.  The difference between a CD and a bond is that if rates rise the bondholders take it in the cornhole.  So in an environment where I am worried about the effects of a rising rate environment I have been emphasizing CDs over bonds.

If you are of a conservative mindset, check out merger arbitrage funds.  The ones with long track records are MERFX and ARBFX.

Argyle

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Re: Are CDs equal to Bonds?
« Reply #3 on: April 09, 2014, 07:26:01 PM »
Where are you getting 3% CDs?  I have some I got five years ago, but where are you finding them now?

Dee18

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Re: Are CDs equal to Bonds?
« Reply #4 on: April 10, 2014, 10:39:19 AM »
The most recent CD was purchased at the end of Dec '13 or beginning of Jan '14 from Pentagon Federal Credit Union, known as penfed.com
I learned about that rate on this blog--so sorry I cannot remember who mentioned it, many thanks to that person!  You can join the credit union by donating $15 to a veteran's group.  Penfed was very easy to deal with by phone and online.  Unfortunately, they are not offer that rate right now.  When I knew I wanted another large CD, I checked bankrate.com weekly.