Another.75 Point Hike Is Behind Us-What Is The Plan For Everyone Who Has Been Patiently Waiting?

sams1985 | Sep 23, 2022 | 781 posts since 2022

We are finally seeing some 5 year brokered CD's north of 4% and 5 year treasury notes approaching 4%. For those of you who have been patiently waiting on the sidelines, is it finally time to jump in?

Looks like the big banks are not going to move on non-brokered CD's as quickly as i thought they would. So what is everyone's plan moving forward? Continue to hold out or jump into some of these brokered CD's/treasury note deals?

Is this just the beginning- could we see 5% in November? I told myself i would be happy with 4% back in June and don't want to get too greedy now but what is everyone else's take?

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Answers

JeffinEasternFL | Sep 24, 2022 | 744 posts since 2020

One jumbo CD has matured and awaiting at MBoI with more parked cash taking advantage of the FDIC insured "sweep program" MBoI has for excess cash with a 3.05% APY of this time. Another jumbo CD matures in November - so I'm looking for both two: Jumbo 48ish and Jumbo 60ish month FDIC insured CD's to fill in my ladder of 4 Jumbo CD's coming due at about annual to 18 mos intervals - probably around December or early 2023 and after more Fed raises. Caveat: My banks/CUs MUST have physical branches SOMEWHERE, no online only institutions!

Years ago (starting 2001) I piled in I bonds at $30K and $60K a year so they are approaching 3/4~ $M in total worth and don't mature until 2031 and each year after for 7 years' time. (A few from the turn of century have the 3% fixed rate above inflation and are over 10%~ yield as of now). Buying $5K of I bonds now just complicates my portfolio, so I'll pass on more.

I may dive into a few short-term Treasury Bills with some of the cash in the meantime awaiting more Fed action.

At 63~ yo I have all the equity exposure I want (about a max of 1/3 of my net worth) - although a great buying opportunity may exist in a few mos (?) and I could move perhaps $100K~ into my aggressive stocks portfolio where shares are/will be "sale priced" from the Biden Administrations wretched polices. My home is paid off too.

Health is good and I have 2 other US govt (USAF officer and Disabled Vet VA disability) incomes and my own IRA annuity that is $72K+ annually for life (which I rollover to another IRA to defer, defer, defer the taxes until age 72 RMD's start) - so I'm waiting until age 70 for Soc Security IOUS to be paid back to me :). My GF has a minimal social Security disability that pays the food bills. Being a DV I pay no property tax or registration fess/parking for my vehicles in Florida. I live EASILY on $60K~ spending annually plus a $9K~ income tax bill. I could spend lots more but, live an uncomplicated life. (That tax bill will rise a LOT after age 72). VA and TRICARE takes care of my health costs 99%. My GF is on Medicare and the state assists here so 96% of her costs are covered.

I'm blessed from years of hard work: owing my own business (as a financial planner managing over $180M at the top years and a lot of permanent insurance sales) for over a decade, serving in the military and those 6+ day work weeks of "half days" with my business that moved to 3 different states over 14~ years (pick which 12 hours to work :). I lived on $50K~ a year just fine for years with noi debts, at times paying triple digit income taxes and ALWAYS fully investing (IRA, SEP-IRA) personal pensions and never taking on debt. Lts of savings too. (I had once a car loan for $6K~ I paid off in 19 mos at age 23-24 and a mobile home loan for 3~ years while in the Air Force at age 27-29 for a whopping $8K~ loan and my initial business computer was a $5K~ lease - I paid that off in a year in 1994). That was all the debt I ever had. I paid cash for college as a young man, I worked and got student aid but never took a college loan. Beg, work, beg, negotiate, work more graduate. I had a double major completed in 4 years too - cum Laude! from Unive of Maine (cheap state U). I had $1100 cash, two (11- and 12-year-old) cars paid for and a job with benefits from the ol Tandy Corp Radio Shack 7 days after graduation in 1982. The USAF paid for my MBA in 1988 except $1800~ (cash of course) of which I had to pay via Tuition Assistance for active-duty military.

Renting modest apartments/townhomes/single family home(s) instead of buying for almost three decades left me with TIME to work hard and invest (Rents of $159 month to $1600 month from age 22 to 48) the difference. (I started dollar cost averaging at age 22 and always invested / saved 15%+or (much) more of my incomes EVERY year thru age 47 retirement (regardless of making just $16K at age 23) and since retiring at age 47. I had modest vehicles I took care of and always sold "over book" value. My relatively conservative portfolio/net worth has gone up 40%~ since I retired! I built two nice homes since age 47, paid cash for 'em and all new stuff along the way (always sold the old stuff before moving to lessen the load and generating dollars from "stuff").
Now I live in a nice private country club full of veterans (in eastern Florida) like myself serving the community - patience pays off handsomely. I even took up golf, not a cheap endeavor when all costs are added :) (like $5~K a year amortized).

In summary, yep, a couple more Jumbo CDs in late 2022/23 to be on the to do list!

Choice | Sep 24, 2022 | 937 posts since 2020

Very nice, Jeff. Proves CDs for everyone! Also, nice to see your concern on expenses, albeit related to golf! :)

JeffinEasternFL | Sep 24, 2022 | 744 posts since 2020

HA! I didn't start playing golf till a few mil+ $$ was accumulated at 58. I even drove a 1998 Ford Taurus w/ over 200K miles (it was running fine, looked good, had icy a/c and was comfortable, cheap to insure and 22~ MPG) until age 58 as well. (And I sold it for $1100 w/ 223K miles :). Plus, I never minded any minor parking lot dings and nobody wanted to steal it. (Parts were cheap too :) Now I drive a nice Lexus SUV that cost $53K new and has 17K miles, LoL also: I never had "pay TV" either (why???) when TV is free in 90% of USA! Get an (outdoor) antenna!! My exceptions in older age: a MLB.TV subscription ($75~ a year) to see my METS. My $60 TV antenna in the attic cost $200~one time installed and I get 60+ channels fine and FREE! I pay $35-month (all in) for my cell phone (Cricket Wireless) but, I do splurge $8~ a month on Sirius Radio for my vehicle and golf cart :). Beats commercials! I buy regular (tho "top tier") gas. I eat at a diner often for $22-$30 "all in" for my GF and I tip 18-20%. I pay my church monthly. My country club (a non-profit corporation that 800 of us own each a share about 1400 of us live here in a town like atmosphere that has: manned gated security, a private golf course, a restaurant, executive chef, staff, 2 bars, tennis, croquet, bocce, shuffleboard, heated 3K sq ft pool, activity and arts building, a golf Pro shop, a golf Pro, a well-supplied gym, etc., I need a calendar to manage it all being this busy and retired! I'm just 15 minutes from the Atlantic beaches and a US military base but, not in a flood zone :) (80% of us who live here are required to be veterans of US military and age 55+). We have a GM and staff of about 100~ to maintain and manage it all - we pay them well). The corporation has a few million in the bank, so never a surprise surcharge in 35 years :). It has NO debts. This pays ALL my home maintenance: paint, roofs, appliances, yardwork, pest control, repairs, plumbing, electrical, yada etc., for $20K~ a year. I watch, they work :) Everything in my modest but, modern home is new but, paid cash for it all. My high deductible insurances (home, vehicle, golf cart and umbrella are just about $2K~ a YEAR :). Peace of mind and time becomes free instead of working on a house! CD's ARE fine in conjunction WITH equities, etc,! Start young, keep buying equities for 3~ decades and never live up to your income! I shop online at Aldi and Wal-Mart too. I've exceeded my goals financially so having a minimal equity exposure (say 1/3~ of my net worth) to cover inflation and to leave an estate for a few good causes when I die is fine with me. I used to set my heat at 65'F (when home, 58'F asleep :) and A/C at 80'f but I guess I'm soft now as 68'F-70'F heat (maybe 6x a year LoL) and 78'F-82'F a/c is my new norm :) I grew up several years with just "wood heat" (in Maine) and seeing one's breath on a winter AM INDOORS in a closed bedroom did happen a few times! And NOW: PRECIOUS time to relax and play as I worked HARD for 31+ years. Often 6 days a week! I used to always wash/wax my own car, repair and service it too but, no more :) That's a splurge to me! I don't "need" to be a decamillionaire (or flipside: see 50% portfolio drops either) at this point in life. Sleeping well with low double or just single digit losses at most "overall" - though I've had nice SOLID double-digit gains since the decade started (especially in 2011 and later.) is fine. My dad was a bricklayer who never made over $20K a year but, never had debt, had a GED at 19 died at 71 and yet had a $2250K+ net worth - a depression kid he was and taught me well. KISS principle...guess I'm a fiscal "conservative" but a "social moderate" (live and let live but, do NOT espouse your liberalism or woke way of life - especially to young minds), a military (disabled service connected) veteran and businessman as well with common sense, a modest IQ and value God, family, health, my country first...

CuriousDave | Sep 23, 2022 | 233 posts since 2018

Ken repeatedly recommends the useful strategy (in a rising interest rate environment) of laddering CDs. The ladder periods would depend on your personal prediction of how soon the rate curves will peak, flatten out and eventually decline. At some point then you will stop laddering and will lock into what you believe to be the peak or near peak rate for a term of at least 5 years, assuming you do not expect to need the funds sooner. Currently shorter term U.S. Treasury securities (bills and notes) have higher rates than most CDs, so for short term laddering Treasuries seem a better option than CDs right now.

GH1 | Sep 24, 2022 | 1,058 posts since 2017

Thank u I appreciate that. Lately pulling trigger to early then rates bump in 3 days

GH1 | Sep 23, 2022 | 1,058 posts since 2017

Yes big banks do not need the deposits. Truist , BOA and the others. Do not hold your money there. I was told many times sorry sorry new rules we can not pay liek CU and others. Well sorry sorry i can not keep my money here

MoneyMoves | Sep 23, 2022 | 149 posts since 2019

My non IRA extra cash is minimal.
---Will buy 2nd I-Bond, this time as ENTITY account, in my Trust Name soon, Sept/Oct.
---Then in Jan 2023, buy another I-Bond in original account.
My IRA money will mature in January at Navy - NFCU.
---Opened the place holder Navy CD awhile back, the 33mo 3.30% ADD ON, but seems unlikely that will be a top rate afterall.
---Regardless, it is maximum $100K allowed, so would need additional account, again not likely will ADD ON afterall.
---Fingers crossed for more clarity in Jan after the FED Nov & Dec rate increases. For now as Ken says, watch the treasuries for a clue when CDs will peak. Thanks in advance, Ken, for your alert to that when it happens.
---Maybe we will get two surprises. CD rates will go higher than we hope AND rates will last longer than a blink; so that we may get into them as needed.

CuriousDave | Sep 24, 2022 | 233 posts since 2018

If inflation trends downwards and CD rates continue to increase, that would be a pleasant surprise as we will be heading in the direction of positive real returns on our savings. If inflation does not trend down and remains high, our real returns will continue to be negative and to add insult to injury we also have to pay income taxes on what is effectively negative income. That applies even if our CDs are held in traditional IRA accounts, as taxable distributions will eventually have to be taken (except distributions to qualified charities).

HappyToBeHere | Sep 25, 2022 | 1 posts since 2022

Hi DA forum members, Hap here, first post ?? I came across this forum last spring when I got interested in how the Fed rate hikes affected fixed income returns.

I’m a couple of years out from retirement. I ramped up my Fixed Income allocation back in late 2018 creating a ladder of individual bonds, some of which have matured.

I have deferred and taxable (emergency) cash ready to deploy. I’ve been sitting on the sidelines watching as rates have increased the last few months, especially the last few weeks. My goal is a 3% - 4% average return during retirement.

My Plan for Deployment:
Taxable – 120K – build 2 year Treasury ladder
Month 1 – invest 20K in 1, 2, 3, 4, 5 month duration, 5K in 6, 12, 18, 24 month duration
Months 2 to 5 – reinvest 5K in 6, 12, 18, 24 month duration
Months 6+ - reinvest 5K in 24 month duration

Deferred – Same concept but including CDs and high-quality bonds to build a 5 year ladder

When to Deploy?
With rates pushing past 4% for 24 months, I’m ready to get started with my 2 year taxable ladder.

For my deferred cash, holding off until the end of this year to see how much higher rates are going.

Great timing on the post sams! I know it’s hard to be patiently waiting, wondering when to pull the trigger, but rates continue to rise, and they will subside at some point. Remember the number one rule in gambling – Never Quit a Winning Streak!

Choice | Sep 24, 2022 | 937 posts since 2020

sams Q is too abstract in my opinion, e.g. marriage, children, age, retired, self employed income, drawing down of SS, IRA RMDs, etc. are all part of the calculus. I will add that adding multiple gift box ibonds may be a very good play! Managing expenses is the primary focus!

Ltssharon | Sep 24, 2022 | 472 posts since 2020

Well I am pretty much in a 2.5 year ladder. Within the 3 years the maturity dates of cds have random maturity dates. I have 1 cd maturing soon, mid Oct, 2022. I am putting it in a 1 year cd. As 2023 arrives, I shall start spreading out my new cd rates so I end up back in my 5 year ladder.

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