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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35397  
Subject: Re: Help with bonds and short term investments Date: 12/12/2002 10:09 PM
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Ben,

Ing is barely below what my credit union is yielding now, and it's been well above anything else for most of this year.

"Are you saying that a laddered CD portfolio is generally better unless you're leaving the money invested for a long period of time (> 20 years) and you have a high state income tax?"

I'm talking about a ladder of 5-year CDs, but that is presumably what you would be doing as you rollover your first installment. It's hard to run calculations with 5-year CDs and I-bonds, which are more variable, and there are some times (as with my credit union, until now) where you may find opportunities where one option looks clearly better. So, try using a ladder of 5-year treasuries as a basis for comparison with EE bonds. EE bonds are 90% of the average for the previous 6 months of 5-year treasuries. So, calculate how long, given your tax bracket (or likely average tax bracket) it will be before the compounding advantage of deferring federal taxes takes to compensate for getting 9% yield. In theory, 5-year CDs should pay enough extra yield over 5-year treasuries to cover paying state taxes—in reality, this doesn't hold perfectly true, which is why sometimes you can find an advantage.

As to your stock question, reread my previous post, which is the best I can do. At your age, given bond interest rates now, I would probably go ahead and drip 100% into stocks in the retirement funds, then add a bond component when interest rates go up, and thereafter try to keep a specified balance, maybe usng the 100-your age formula.
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