Anyone hold CDs or TBills?

[Unionville]

For those who are FI, curious if anyone here buys CDs or Tbills. Bond funds have been a loser for me, and I'm looking at other things to replace them with, that are more predictable.  Wondering if there is a sweet spot where you think it's worth buying them (5%? 1 year? )  And how much of your portfolio are invested these vehicles?

[We be free if we try]

I do. High for this crowd, but for right now about 35% of my nest egg is in Tbills and cd’s. It was in cash but shifted over the last 8 months, with a partial ladder. I also don’t love the bond funds, but may partly shift back to them as interest rates top out.

[dividendman]

Just a warning that selling your bond funds now is a classic buy high sell low mistake that people make. Buying individual bonds have risks as well.

That being said I keep about 6 months to 1 year of expenses (not very much of my overall portfolio) in short term treasuries (bought directly from treasurydirect). I have about 15% of my portfolio in bonds overall (mostly BND) but that 6 months to 1 year of short term treasuries/ibonds/etc. is included in the 15% bond allocation.

[Zamboni]

I'm about to put a bunch of newly earned money in a CD ladder for a solid short term position. I'll stay under the FDIC insured cap. I bonds for some inflation-protected but fairly safe long position. My normal blend of stocks/bonds held to wait it out right now to avoid selling low.

[DrinkCoffeeStackMoney]

I haven't put any money into CD's for years; but with rates up I put $10k in a 24 month CD in November 2022 when rates at my local credit union hit 4.5%. In January the same credit union offered a 12 month CD at 5.25% so I parked another $6k in cash there. This is money outside of our emergency fund but that we didn't necessarily want to put in the market.

[flyingaway]

I have some money in monkey market funds, maybe I should buy some CDs. But I am just too lazy.

[Turtle]

I put a chunk of money into a CD earlier this year in anticipation of needing the money for some sizeable house maintenance next year.

It was better interest than leaving it sitting in savings.

I also have some in I Bonds.  That money is longer term emergency fund/ early retirement sequence of returns risk mitigation.

[Unionville]

I do. High for this crowd, but for right now about 35% of my nest egg is in Tbills and cd’s. It was in cash but shifted over the last 8 months, with a partial ladder. I also don’t love the bond funds, but may partly shift back to them as interest rates top out.

It seems like the highest rate are 3-6 months - do you rotate and rebuy a lot of them every few months? Or do you just try to get a few for a large amount of money?  I'm trying to figure out a simple way to try this.

[Zamboni]

My local credit union's highest rates are on 24 month CD. Usually their 5 year CD's have higher rates, but not in this case. Interesting . . . there must be some calculation from their end.

[EscapeVelocity2020]

Instead of CD's, I hold Money Market funds - slightly more liquid and same yield.

Instead of TBills, I hold iBonds and TIPS (VAIPX) as well as some Munis (VWIUX)...  Not sure if I'll ever go the bond ladder route.

[Unionville]

Instead of CD's, I hold Money Market funds - slightly more liquid and same yield.

Instead of TBills, I hold iBonds and TIPS (VAIPX) as well as some Munis (VWIUX)...  Not sure if I'll ever go the bond ladder route.

I hear you on that.  One advantage, from what I understand is CD's are different in that they are FDIC insured and you don't have to pay state tax on them (which matters if you live in a high tax state).  I don't think any of the others have both these characteristics - correct me if I'm wrong.

[infromsea]

I have a ladder based on our unique situation (not that we are that unique, just that OUR situation is unique and specific to US....).

IRAs/other investments etc. etc. etc. including cash

Bond funds (more than most would suggest but it works for us)

Tbills - both through treasury direct and some at my brokerage account

CDs - at my brokerage account

Short term bonds - at brokerage account

I've been buying 3-6 month cds and short term bonds at brokerage account, looking to take advantage of current rates and not lock in with the expectation of rates continuing to go up.

My bond funds have been crap for last year but I don't have to sell and lock in paper losses, the other vehicles are generating returns above a checking/savings account so worth the minor hassle of buying/tracking/selling etc. Once it looks like the rate hikes are done (and who knows when that might be, could be 10 years from now...) I'll look to move into longer term vehicles but for now, it's the short term game.

FWIW, I have tons of free time to manage this stuff, if I was super busy I wouldn't bother, it probably wouldn't be worth the time.

[EscapeVelocity2020]

Instead of CD's, I hold Money Market funds - slightly more liquid and same yield.

Instead of TBills, I hold iBonds and TIPS (VAIPX) as well as some Munis (VWIUX)...  Not sure if I'll ever go the bond ladder route.

I hear you on that.  One advantage, from what I understand is CD's are different in that they are FDIC insured and you don't have to pay state tax on them (which matters if you live in a high tax state).  I don't think any of the others have both these characteristics - correct me if I'm wrong.

Interesting, didn't know that about CD's, but I live in Texas so no state tax.  Municipal bonds also have Federal tax exemption.

[Omy]

I think you DO have to pay state taxes on CDs.

[TreeLeaf]

I think you DO have to pay state taxes on CDs.

Considering there is straight up no income tax at all for several states, I think this actually depends on the state you live in...

[jim555]

Treasuries have no state tax, CDs do have state tax.

[Unionville]

I think you DO have to pay state taxes on CDs.

MY BAD.  I confused them with Treasury Bonds, not CDs

[rtg]

Yes, grabbed a 5.4% 1 year yesterday. Probably about 50% is in cds/tbills vs equities right now, 1 year or less duration on the fixed income side.  Hoping to either roll them into new fixed income or invest in VOO depending on my risk tolerance.  I'm striving for 70/30 stocks/fixed income but these uncertain times are making it hard for me to pull that trigger.

[Unionville]

Yes, grabbed a 5.4% 1 year yesterday. Probably about 50% is in cds/tbills vs equities right now, 1 year or less duration on the fixed income side.  Hoping to either roll them into new fixed income or invest in VOO depending on my risk tolerance.  I'm striving for 70/30 stocks/fixed income but these uncertain times are making it hard for me to pull that trigger.

5.4!  That's great.
Do you mind if I ask you how much of your CD/tbills are in IRA (if any)?  Does the lack of state tax on tbills have any determination on that decision?  I'm mulling over what to put where and why.

[billsfan1_2000]

Beware two things - these investments are not necessarily 100% safe. 

First t-bills - the debt ceiling debacle is going to come to a head late spring or early summer.  There is a small, but non-zero, chance of a US default....

Which brings us to our second risk....CD's and risks in the banking system.  There is SIGNIFICANT risk of insolvency at a large # of banks (beyond Silicon Valley Bank and Signature)....recommend diversifying and only dealing with AAAAA rated institutions with WELL MANAGED interest rate risk relating to their Held to Maturity securities portfolios.

Of course the biggest risk of all is a full blown currency crisis....in which case precious metals are your friend.....

[elysianfields]

I don't think it wise to hold on to a mortgage and invest in debt, because you're borrowing with one hand and lending with the other.  But perhaps your mortgage is at a low enough rate for you to arbitrage between the two.

People qualifying for pensions, as I will in < 36 months (but who's counting?), benefit from bond-like income, which reduces or eliminates the need to hold bonds in one's portfolio.  My Federal pension is sorta linked to the CPI, so also offers a measure of inflation protection.

Based on these two factors, we don't own any CDs or bonds.

I can see the case for money market funds for easy access to certain cash so as not to be forced to sell equities when prices have fallen, or even a CD ladder for longer-term certain cash needs, depending on one's comfort with risk.

[JupiterGreen]

Beware two things - these investments are not necessarily 100% safe. 

First t-bills - the debt ceiling debacle is going to come to a head late spring or early summer.  There is a small, but non-zero, chance of a US default....

Which brings us to our second risk....CD's and risks in the banking system.  There is SIGNIFICANT risk of insolvency at a large # of banks (beyond Silicon Valley Bank and Signature)....recommend diversifying and only dealing with AAAAA rated institutions with WELL MANAGED interest rate risk relating to their Held to Maturity securities portfolios.

Of course the biggest risk of all is a full blown currency crisis....in which case precious metals are your friend.....

Please excuse the ignorant question, but where are you finding the bank ratings? I looked this up and got a bunch of results, but nothing that looked independent. I see the FDIC defines the ratings, but I couldn't find a listing/database. Does anyone know the answer to this?

[MustacheAndaHalf]

Beware two things - these investments are not necessarily 100% safe. 

First t-bills - the debt ceiling debacle is going to come to a head late spring or early summer.  There is a small, but non-zero, chance of a US default....

Investopiedia disagrees:
"Treasury bills are backed by the U.S. government and considered to be risk-free."
https://www.investopedia.com/terms/s/safe-asset.asp

So does wikipedia:
"Although the United States is a sovereign power and may default without recourse, its strong record of repayment has given Treasury securities a reputation as one of the world's lowest-risk investments."
https://en.wikipedia.org/wiki/United_States_Treasury_security

[MustacheAndaHalf]

For those who are FI, curious if anyone here buys CDs or Tbills. Bond funds have been a loser for me, and I'm looking at other things to replace them with, that are more predictable.

The following page shows the performance of Vanguard Total Bond Market Index Fund (VBTLX) going back to when it was created (11/12/2001).
https://finance.yahoo.com/quote/VBTLX/performance?p=VBTLX

In its 20 year history, here are the worst 3 years:

2022 -13.16%
2013  -2.15%
2021  -1.67%

Did 2022 hurt bond holders?  Yes.  It could even happen again - but a loss of over 10% is very rare.  I suspect if bonds dropped 2% last year you wouldn't consider selling them.  My advice would be to ignore 2022 and wait for a recovery, just as you would investing passively in the stock market.

[stoaX]

As I've aged, I've slowly changed my asset allocation away from stocks to more fixed assets like CDs. So they do play a role.

Stock index funds are still by far the biggest part of my portfolio but they won't be forever.

[o2bfree]

I currently have about 14% of my portfolio in 3-month CDs with Fidelity at 5.05% and 5.1%. Also a big lump of cash with Wealthfront at 4.3%. This is unusual for me, as my AA is usually around 85/15, but we're looking to buy a house this year, and would like to avoid buying on a contingency.

[farmecologist]

I have recently considered buying CDs/TBills.

However, with savings accounts offering decent rates now, is it worth it to have your money tied up like that?  I decided it wasn't, since I wanted liquid funds.

[dividendman]

I have recently considered buying CDs/TBills.

However, with savings accounts offering decent rates now, is it worth it to have your money tied up like that?  I decided it wasn't, since I wanted liquid funds.

It depends on how liquid, 4-week to 26-week T-Bills have interest rates of 4.5 to just over 5%. So, you can just do month-to-month with four weeks and decide every four weeks, unless you need the money in the upcoming 4 weeks or your bank gives you a higher rate. You also need to factor in state income tax where bank deposit interest is not exempt but T-Bills are.

[jim555]

I have recently considered buying CDs/TBills.

However, with savings accounts offering decent rates now, is it worth it to have your money tied up like that?  I decided it wasn't, since I wanted liquid funds.

In a brokerage account you can sell a T-Bill and the funds will be available the next day.  You can also borrow up to 90% in a margin account.

[lutorm]

As we're just about to fire, we have the first 5 years of expenses in a "bond tent" in the form of rolling sets of 6-month t-bills. We picked T-bills instead of bond funds based on https://www.kitces.com/blog/accelerating-the-rising-equity-glidepath-with-treasury-bills-as-portfolio-ballast/, and I'm pretty happy with our choice now. The analysis in that article showed that using T-bills instead of bond funds was often a disadvantage but were better in the cases you care about, where the SWR is low.

[Fomerly known as something]

I’m have some of my cash on hand funds in CDs and treasury securities.  It is for medium term savings 2-5 years.  I also carry bonds even as a federal employee with a pension.  I have enough, they help reduce volatility in my portfolio which I prefer, I understand I might be giving up some gains.

[Car Jack]

So not really FIRE, but retirement is coming in 4 weeks for me.  I'm 66 1/2.  My AA is frozen at 50/50 and has been for about 3 years.  With rates leapfrogging each other, I'm limiting myself to only Redneck and Ally.  I moved $150k into Ally's 11 month no penalty CD at 4.75%.  I then found out about Ally having money market at higher than their savings account, so moved my savings there over.  Lastly, Redneck upped their money market rate to 5.05% and the max you can earn that for from $75k to $100k.  So at the moment, $100k at 5.05% at Redneck money market, $150k at 4.75% in Ally no penalty CDs and $24k in Ally money market at 4.15%.  Random money in the Ally savings and in my credit union to pay bills from.  Sounds like I'm hoarding cash.  Well, that's because with retirement coming which even with my spread sheets and spending list, it's all new to us with insurance changing from my workplace system at $400 a month to Medicare and ACA which will be at least 5 times the cost unless DW goes on Cobra which will be even more, however deductible and out of pocket max hold out. 

On the bright side and all planned out is that I signed up for $3050 of health care flex spending account.  I know that I can spend this entire amount even though I'm leaving half way through the year.  So cha-ching....I get $3050 because we spend a crap ton on medical expenses while paying half that and the half is tax free money. 

[jim555]

T-Bills are really popping, 5.42% and 5.46%, 3 and 6 month respectively.

[navyswim01]

For those who are FI, curious if anyone here buys CDs or Tbills. Bond funds have been a loser for me, and I'm looking at other things to replace them with, that are more predictable.  Wondering if there is a sweet spot where you think it's worth buying them (5%? 1 year? )  And how much of your portfolio are invested these vehicles?

I just FIRE'd a month ago. I keep about two months expenses in interest bearing checking to float my expenses. I have about two years' cushion of expenses in a CD and Treasury ladder. I was using CDs until I dug into Treasuries and have decided that the extra .25% or so I get from going directly to Treasuries is worth the interest rate risk.

I do not use Treasuries as a long term investment-- the interest rates beyond 1 year are lower than the short term rates--but as a safe way to get some return on money I am unlikely to need before the bonds mature. It's basically savings with a little bonus for me.

I use bond funds in my longer term investments to balance out my stock-heavy portfolio, but I'm overweight in stock based on most recommendations (outside of J. L. Collins). The recent declines in bond funds (last couple of years) is due to the relatively rapid rate increase and not something I am structurally concerned about. If I had planned further out on FIRE'ing, I would likely have more of my portfolio in bond index funds.

In the meanwhile, I'm doing some part time work remotely in a low-stress role doing work I genuinely enjoy right now. The work just appeared a couple of weeks before I left my job, so it was not part of my plan. It covers 2/3 of my monthly expenses, so I am probably extremely conservative in my cash/Treasury/CD saving at this point. Time will tell, but it feels great right now.

[farmecologist]

I have recently considered buying CDs/TBills.

However, with savings accounts offering decent rates now, is it worth it to have your money tied up like that?  I decided it wasn't, since I wanted liquid funds.

In a brokerage account you can sell a T-Bill and the funds will be available the next day.  You can also borrow up to 90% in a margin account.

I get it...

However, we are quite happy with how Sofi turned out, especially compared with our former bank that was STILL only paying 0.4% ( which is a pathetically negligible rate )...and that is their "bumped up" rate...lol.  Suck it, former bank!

Sofi's 4.2% is a pretty amazing difference.  We have our full emergency fund at Sofi so the monthly interest is in the 100s of dollars now compared to diddly squat at the other place.  Could we make more?  Possibly...but we are happy at Sofi for now.

Again...I'm not sure how "local bank chains with lots of brick and mortar locations" are going to survive, except for the fact that people are lazy by nature and won't change banks because of that.  I will admit it was a bit of work to get everything changed over.

[Must_ache]

I bought Treasury bills and I-Bonds over at Treasury Direct.  However you still pay federal taxes on the interest. 

One thing I discovered recently is ticker TBIL "3-month Treasury T-Bill" which as of the last dividend payment is yielding about 5.0%.  The value of the stock stays pretty consistent except for normal monthly fluctuations before and after it pays out the dividend.  And there won't be any taxes on divdend payments I believe as long as you hold the fund for a couple months so that the dividend is considered qualified.  Other bond funds could have longer-term bonds whose values would plummet with higher interest rates.  But I expect this should track the short-term interest rate pretty well and when it goes below 4% maybe I'll go looking somewhere else.

Speaking of CDs: they are FDIC insured.  Seems to me then that you should chase the higher yield because even if the bank goes under you should get your $$ back - eventually...   That being said I have made sure to get my CD's from less dubious banks. 

[dividendman]

I bought Treasury bills and I-Bonds over at Treasury Direct.  However you still pay federal taxes on the interest. 

One thing I discovered recently is ticker TBIL "3-month Treasury T-Bill" which as of the last dividend payment is yielding about 5.0%.  The value of the stock stays pretty consistent except for normal monthly fluctuations before and after it pays out the dividend.  And there won't be any taxes on divdend payments I believe as long as you hold the fund for a couple months so that the dividend is considered qualified. Other bond funds could have longer-term bonds whose values would plummet with higher interest rates.  But I expect this should track the short-term interest rate pretty well and when it goes below 4% maybe I'll go looking somewhere else.

Speaking of CDs: they are FDIC insured.  Seems to me then that you should chase the higher yield because even if the bank goes under you should get your $$ back - eventually...   That being said I have made sure to get my CD's from less dubious banks.

The bold part isn't correct. ETFs that distribute interest income are still taxed at regular income rates.

[farmecologist]

I bought Treasury bills and I-Bonds over at Treasury Direct.  However you still pay federal taxes on the interest. 

One thing I discovered recently is ticker TBIL "3-month Treasury T-Bill" which as of the last dividend payment is yielding about 5.0%.  The value of the stock stays pretty consistent except for normal monthly fluctuations before and after it pays out the dividend.  And there won't be any taxes on divdend payments I believe as long as you hold the fund for a couple months so that the dividend is considered qualified.  Other bond funds could have longer-term bonds whose values would plummet with higher interest rates.  But I expect this should track the short-term interest rate pretty well and when it goes below 4% maybe I'll go looking somewhere else.

Speaking of CDs: they are FDIC insured.  Seems to me then that you should chase the higher yield because even if the bank goes under you should get your $$ back - eventually...   That being said I have made sure to get my CD's from less dubious banks.

Interesting.  I will check out TBIL.

BTW - I have quite a bit of my 401K in Vanguard Wellesley Admiral (VWIAX).  This is generally regarded as a great "balanced" fund in "boglehead" circles.  And the current SEC yield is 4.12% and rising.  Note that the fund also has corporate bonds, etc...and I feel it is a good overall mix.   I use this to counterbalance my investments in ultra risky equities in my brokerage account ( I do active stock trading and investing there ).

[BFGirl]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

[Must_ache]

The bold part isn't correct. ETFs that distribute interest income are still taxed at regular income rates.

That is correct, upon further investigation :(

[navyswim01]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

My opinion is that this is overly risk averse.

However, FIRE is about making things work for you. If the security of those assets is worth the *potential* reduction in gains, then that is what you should do. There is no need for face punches for differing risk tolerance.

[mstr d]

I dont use them because interest rates where so low for a ling time.

And in the netherlands bonds, cds and t bills are taxed as high as stocks. About 2% of asset worth.  While savings are taxed only 0,15% so it was cheaper to leave 6 months expenses in savings in the Netherlands  as long as returns are below 2%.

[Jack0Life]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

[Jack0Life]

Beware two things - these investments are not necessarily 100% safe. 

First t-bills - the debt ceiling debacle is going to come to a head late spring or early summer.  There is a small, but non-zero, chance of a US default....

Which brings us to our second risk....CD's and risks in the banking system.  There is SIGNIFICANT risk of insolvency at a large # of banks (beyond Silicon Valley Bank and Signature)....recommend diversifying and only dealing with AAAAA rated institutions with WELL MANAGED interest rate risk relating to their Held to Maturity securities portfolios.

Of course the biggest risk of all is a full blown currency crisis....in which case precious metals are your friend.....

Well, a nuclear could hit us at any time so nothing is 100% safe.
You might as well keep all the cash under your bed if you don't think CDs and Tbills are 100% safe.

[dividendman]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

Just to be clear, this strategy is not what the 4% rule means and will likely cause the 4% rule to fail moreso than a portfolio with stocks.

[farmecologist]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

Just to be clear, this strategy is not what the 4% rule means and will likely cause the 4% rule to fail moreso than a portfolio with stocks.

Yes...the 4% rule generally requires a portfolio with some stocks".   However, you would be surprised at how low the percentage of stocks needs to be for the 4% rule to work.

This is a really fun tool to play around with :  https://engaging-data.com/visualizing-4-rule/

It lets you change the stock/bond/cash ratio.  Some of the results with large bond percentages perform much better than I would have anticipated.

[Jack0Life]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

Just to be clear, this strategy is not what the 4% rule means and will likely cause the 4% rule to fail moreso than a portfolio with stocks.

Go ahead and find me a period where if you had a portion of your portfolio in CDs earning more than 4% and the 4% rule fail.

Let's say I have a $1 million dollar portfolio.
CD's are 5% right now so I decided to put 50% of my portfolio in 10yr CDs.
-So for the nest 10 yrs, the market is crap and not producing over >4%, of of course this strategy fail but if I was 100% stock, I'd be in worst shape.
-Next 10 yrs, market is booming, my 50% stocks is making way over 5%, my 50% CDs still making over 4%. No failure here.
So in what scenario where if I allocate in CDs over 4% would I fail ?? The only way I fail is if the market is tanking in which case, I'm better off because a portion of my portfolio is making over 4%
Now if you tell me you're probably end up making more money by leaving a majority of your portfolio in stock(index), then I wouldn't disagree.

[dividendman]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

Just to be clear, this strategy is not what the 4% rule means and will likely cause the 4% rule to fail moreso than a portfolio with stocks.

Go ahead and find me a period where if you had a portion of your portfolio in CDs earning more than 4% and the 4% rule fail.

Let's say I have a $1 million dollar portfolio.
CD's are 5% right now so I decided to put 50% of my portfolio in 10yr CDs.
-So for the nest 10 yrs, the market is crap and not producing over >4%, of of course this strategy fail but if I was 100% stock, I'd be in worst shape.
-Next 10 yrs, market is booming, my 50% stocks is making way over 5%, my 50% CDs still making over 4%. No failure here.
So in what scenario where if I allocate in CDs over 4% would I fail ?? The only way I fail is if the market is tanking in which case, I'm better off because a portion of my portfolio is making over 4%
Now if you tell me you're probably end up making more money by leaving a majority of your portfolio in stock(index), then I wouldn't disagree.

You'll fail in a high inflation scenario, like today. Imagine inflation stays in the 4-5% band, and stocks still perform OK at 4% after inflation. So, your bonds now get you zero due to inflation, and your overall portfolio is only giving you 2% of the 4% real returns you need - failure.

[farmecologist]

I'm sure I will get facepunched, but 75% of my investments are currently in T-bills, CD ladders, money market funds or municipal bond funds. The T-bills were purchased on the secondary market at a discount through the recommendation of my financial advisor.

I mean if you decided on the 4% rule, then CDs and Tbills are beats it right now and there's no risk.

Just to be clear, this strategy is not what the 4% rule means and will likely cause the 4% rule to fail moreso than a portfolio with stocks.

Go ahead and find me a period where if you had a portion of your portfolio in CDs earning more than 4% and the 4% rule fail.

Let's say I have a $1 million dollar portfolio.
CD's are 5% right now so I decided to put 50% of my portfolio in 10yr CDs.
-So for the nest 10 yrs, the market is crap and not producing over >4%, of of course this strategy fail but if I was 100% stock, I'd be in worst shape.
-Next 10 yrs, market is booming, my 50% stocks is making way over 5%, my 50% CDs still making over 4%. No failure here.
So in what scenario where if I allocate in CDs over 4% would I fail ?? The only way I fail is if the market is tanking in which case, I'm better off because a portion of my portfolio is making over 4%
Now if you tell me you're probably end up making more money by leaving a majority of your portfolio in stock(index), then I wouldn't disagree.

You'll fail in a high inflation scenario, like today. Imagine inflation stays in the 4-5% band, and stocks still perform OK at 4% after inflation. So, your bonds now get you zero due to inflation, and your overall portfolio is only giving you 2% of the 4% real returns you need - failure.

Yep...you absolutely need a balanced portfolio ( or all stocks for those of higher risk profile ) for the 4% rule to be feasible.  To be fair though...stocks and bonds haven't exactly been doing great over the last couple years.  However, traditionally a balanced portfolio will handily outpace inflation.

[Chris Pascale]

With current rates, they make more sense than they used to. Also, with these products you can just forget about how your money's doing and focus on how you're doing.