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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Time for a 5-Year CD ladder? Date: 3/24/2003 3:57 PM
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I'd like to move some funds to CDs, but with the unusually low interest rates, I wonder if this is the appropriate time to tie up funds for five years in a low return investment. Does buying two and three year CDs make more sense until the future become clearer?

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6790 of 35400
Subject: Re: Time for a 5-Year CD ladder? Date: 3/24/2003 6:09 PM
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I would do some back of the envelope calculations. What are your options? What are the yields from each investment? How will your returns change if interest rates increase? What timing is involved?

So when and how much do rates need to change before one investment becomes clearly better than another? Then what are the odds that that change will happen in that time frame?

From this kind of analysis, you can put all this in perspective and hopefully not over react in either direction (as long as the changes and timing are within the range you estimate).

You'll have to decide for yourself based on what rates are available to you.

Best of luck with your choice.

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6791 of 35400
Subject: Re: Time for a 5-Year CD ladder? Date: 3/24/2003 6:44 PM
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At this low point in the history of interest rates, I don't see any sense in going out 5 years for ANY part of a CD portfolio.

Yes, I would do something like a 2-3 year assortment, OR just keep it all even shorter. T-Bills, perhaps, with no penalty for early withdrawal.



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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: 6793 of 35400
Subject: Re: Time for a 5-Year CD ladder? Date: 3/25/2003 7:58 AM
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I'd like to move some funds to CDs, but with the unusually low interest rates, I wonder if this is the appropriate time to tie up funds for five years in a low return investment. Does buying two and three year CDs make more sense until the future become clearer?

When I've crunched numbers on this, for various scenarios, I've found that taking lower interest rates with shorter terms while waiting for rates to go up usually ends up worse than biting the bullet and taking the low rate of the 5-year. But as rates have gotten lower, I've started laddering, 1, 2, 3, 4,5 year CDs, even with small amounts of money, since if rates do go up moderately (1% or so) in the next couple of years, this works out similar to all in a 5-year, and protects against a dramatic increase in rates, plus helps build a long term ladder of 5-years.

But watch out for all those: stay short term and wait protestations. You don't have to wait too long before the lower interest rate while waiting leads to a lower return over 5 years, unless you assume a huge jump in rates fairly soon.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6797 of 35400
Subject: Re: Time for a 5-Year CD ladder? Date: 3/25/2003 1:13 PM
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This is all about timing. When will that rate increase occur (and how large will it be)? If next month, short term investments for now are definitely the right thing to do. If two years from now, then bond funds are OK for the next year and a half or so.

A ladder is a pretty good deal in that you don't have to guess right. You don't have to time the market. It gives you average returns with no hassles.

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