If you are going to have a ladder, I find CDs very useful if the amount in your ladder is under 500K. Above that, you might wish to start buying bonds.... as you run out of banks paying high interest rates and FDIC insured.If you have a ladder, you track interest rates up and down. I'm still smiling with the CDs I bought in 99 and 2000...paying 7.3%. I did have to buy a CD this year at 4.3%, but the average of my CD ladder is about 5.5% now, and slowly declining. Once interest rates kick up again, I'll be getting more interest each time I renew a 5 year CD. Let's say in 2000 I felt a whole lot better having the CDs..knowing there was 5 years plus annual money in CDs that weren't going away....and knowing most 'dips' last on the order of 18 months..makes a downturn easier to stomach.I use the interest as part of my living money, as they are in taxable accounts, and you pay taxes on the interest. I have no pension (I took a lump sum and am doing better) - it wasn't much anyway. A ladder will never have the 'best rate' or the worst rate.I would not buy currently a long term bond fund..they get hit the worst when interest rates rise. If I had to put money into bonds, right now it would be short term corporate bond fund, paying about 3% or so. It will have the least impact from interest rate rise/if when. I have some money in TIPS in my tax deferred account, as well as some in GNMA and REITS. Mostly in Vanguard total bond fund, with 20% in TIPS. I didn't get to stash that much tax deferred..less than 15% of my net assets are tax deferred. So I am just letting it grow. You need to consider some hedge against inflation. Imagine an economy where energy prices climb higher than today..the economy doesn't grow much at all, maybe stalls out.... the deficit rises more and more....interest rates start to rise, but GDP growth doesn't. Stocks stagnate, or worse, drop. People are hemmed in by their debt, but salaries aren't rising - and costs are. Where does that leave you? t.
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