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Laddering Strategy To Buffer Against Rising Rates

keithsanfran
  |     |   15 posts since 2014

I am planning on buying Fidelity brokered CD's for the convenience as opposed to  buying direct  multiple CDs from banks/credit unions. In the past I purchased CD's all over the US.  I am 75 and want to make things simpler. I am aware I lose liquidity and the EWP of going direct.

Is there a ladder, 4 or 5 years, that will offer some protection to rising rates? Would a ladder of shorter durations going out to 5 years be an effective approach?

On a side note, I've been in the position to ask for an EWP on a 5 year CD, usually 1 year penalty, in order to buy a higher yielding CD, but it has never been worth it. So I just lived with it. 

Thanks,

Keith

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4


Answers
Ltssharon
  |     |   471 posts since 2020
Here's another thought: Maybe you might want to ladder treasury bills and notes as well as CDs. But I don't know if there is a 4 year Treasury, but maybe you could purchase one at Fidelity, with help from their telephone people, a used secondary 4 year treasury. Also, the investment newsletter I get says the best ladder IN THE CURRENT ENVIRONMENT is a 6 month, 12, month, 18 month ladder. I have no idea if that is correct. I heard a different talking head say to make a 10 year ladder if you are elderly. I have no idea what logic was behind that idea. If an answer pops into my head, I will share with you
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keithsanfran
  |     |   15 posts since 2014
Good input regarding including Treasuries. They have the liquidity (and state tax free) elements.  Regarding the ladder going out 18 months, I've seen that recommendation too. Who knows?   One of Ken's recommendations is to keep a portion of money liquid in a MM account and wait and see.... My Fidelity MM account is paying 2.95% right now. An excellent alternative to making decisions right now. 
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RichardW
  |     |   810 posts since 2019
keithsanfran…Just curious, what is your Fidelity Money Market account which is currently yielding 2.95%? The current 7-day yield of SPAXX is 2.53%, and the current 7-day yield of SPRXX is 2.83%.
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4
keithsanfran
  |     |   15 posts since 2014
FZDXX , Fidelity Money Market Premium Class. Minimum $100,000 balance
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RichardW
  |     |   810 posts since 2019
keithsanfran…Thanks for your feedback. You just let me know of yet another money market fund that is currently yielding more than my money market fund.
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Ltssharon
  |     |   471 posts since 2020
To answer your question, I think participants/responders would want to know if your money is going to dribble into your Fidelity account a little at a time, or will you have your money available in one big swoop, and go forward from there?

Good luck getting some answers. It is a great question.
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keithsanfran
  |     |   15 posts since 2014
I usually go for the one due date for funds, At this point I might want to take the interest. It does not really matter, and I'm not concerned about reinvesting the interest.
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John19
  |     |   395 posts since 2022
Is the best thing to do to buy brokered cd's and treasury notes at 6%, then sell them in a few years when it's 2%.
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beecia
  |     |   20 posts since 2019
One thing to consider is if you're receiving 6% when everyone else is getting only 2%, would you want to give up the higher yield by selling?
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keithsanfran
  |     |   15 posts since 2014
No easy answers to any of this.
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CuriousDave
  |     |   233 posts since 2018
Depends partly on whether or not one is looking for a good income source. If no, then it’s really looking for long term capital gain and for the tax savings from such gains versus ordinary income. If yes, then you would probably want to hold through maturity.
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