OK, The rates seem to be dropping quite a bit. Since I am looking to park some money in these instruments have I waited a little to long or is this a short term blip? I suppose I thoughtwrongly that with the feds rate at 5.25% and on hold things would be a little more static. This would give me time to move my money out of the Money Market funds into these instruments. I know I am talking in general terms but I am still trying to work out what's best for me.Looking for 5.3% + for the next 10 years and I am restricted via a Fidelity retirement 401k account and their access to Brokerage CD's and treasuries. Can anyone unruffle my feathers?Pappy
Pappy,You didn't wait too long, you did the best you could given the information and circumstances you had avialable. This is the same circumstance we are working with today.What I'm looking at has raw interest rates for CDs higher then Treasuries. I don't know what your local tax situation is, so that may or may not matter to you. Agency bonds are also returning a higher yield some of them may be tax advantaged to you as well, it will take some research on your part. It looks like the highest safe yeilds are in the 5 and 10 year mortgage backed securities. These are great if you don't care how or when the lumps of your principal get returned to you. You will need 25k to buy the Ginnies, but not Freddies, Fannies or Farmers. Assuming you have access to these.What to do? Well you could stay short in tresuries waiting for movements up. This puts you at risk for dropping rates also. You could ladder a portion of what you want to put to work in CD's and keep the rest short. Or you could ladder it all in CDs. Or just bite the bullet and grab the longest highest CD's available and load up. There isn't a horribly wrong choice. If your threshold is 5.3% you ought to be able to find a long CDs that exceed that in the current market. It may take a call to Fidelity so that they will shake a few trees for you.jack
What I'm looking at has raw interest rates for CDs higher then Treasuries. I don't know what your local tax situation is, so that may or may not matter to you.401 k. Taxes irrelevant until withdrawal, when whatever will be at marginal rate.I would expect, in general, if you have access to relatively high yielding CDs (Vanguard has far better than average but not the top listed on bankrate), they should beat Treasuries of the same maturity in tax advantaged accounts, though sometimes you get anomolies.I think in this flat rate environment, an instant ladder, per Jack's suggestion, is a reasonable choice. I think when there is a steep yield curve, an instant ladder and hoping rates will go up soon is probably a losing proposition (been there, done that).You might want to hold out until October (money market rates aren't bad) and see where trips are at for the next auction. You won't knowif you are getting 5.3%, but you will know how much you are getting above CPI-U.
Jack,I checked out the available Ginnie Maes under the Fidelity Brokerage in the 401k. I do have access to those in the Fidelity account. I am not sure how I feel about those but I appreciate you bringing those to my attention.I may take a small position once I satisfy myself how they work.ThanksPappy
Lokicious,I sort of feel like a deer in the headlights. After asking in July about the 10 year tips as you may recall they were about 2.55% I justcouldn't pull the trigger. Now I wish I had. So yes I will check out the 5 yr tips in October of course it appears that rate will be much lower.And someone else mentioned the 5.83% Pentagon Credit Union CD's.I would have to purchase those on the retail side and the issue of taxes come in to play. This year I will be in the combined state and fed tax rate of 30%. But next year do to a non taxable disability payout I should have next to no taxes. So that may not be much of an issue.Not complaining to much its nice to have the capital to invest now I just have to put it in the right places because its not a endless stream.Pappy
Pappy,Most often you will see Ginnie Maes refered to as coninuously callable. This refers to the underlying bundle of mortgage loans that supports them. As the loans are paid off that portion of the principal is returned to you. These bonds don't work like typical bonds where you loan someone $1,000 and they pay you interest twice a year and at the end of the loan give you back your money. What this means is that you will have greater reinvestment risk because you will not know at any given pay out exactly how much money will be paid out. You are gauranteed, by the federal govt, both the interest payment the return of principal but the return tends to be a bit lumpy. For folks that want income flowing Ginnies are usually a good tool. As a pure savings tool they often aren't as effective as other types of bonds or CDs.jack
I sort of feel like a deer in the headlights. After asking in July about the 10 year tips as you may recall they were about 2.55% I justcouldn't pull the trigger. Now I wish I had. So yes I will check out the 5 yr tips in October of course it appears that rate will be much lower.And someone else mentioned the 5.83% Pentagon Credit Union CD's.I would have to purchase those on the retail side and the issue of taxes come in to play. This year I will be in the combined state and fed tax rate of 30%. But next year do to a non taxable disability payout I should have next to no taxes. So that may not be much of an issue.Not complaining to much its nice to have the capital to invest now I just have to put it in the right places because its not a endless stream.Pappy,If I may be profound, thre's no use crying over spilt milk. (Proverbs do pretty much say everything worth saying.) I admit I'm annoyed as well as surprised that PenFed just raised its yields, again, while the general trajectory is down. But we all have to make decisions on the current evidence, and in hindsight we are often wrong.When it comes to something like pulling the trigger on TIPS, you need to decide what kind of return above inflation is enough for your fixed-income minimum. TIPS may still end up below what you could have gotten with something else, since we don't know what CPI-U will actually be. But, for me, if the TIPS fixed yield is good enough, and other options aren't clearly likely to do better, I'm willing to accept what TIPS have to offer. Given where interest rates have been for the last 5 years, TIPS over 2% don't look bad.
Pentagon Federal Credit Union has a CD sale going on at 6% APY for 3 yrs. If you don't qualify for the PenFed any other way, you can join the National Military Families Association for $30 for 1 yr (I think).brucedoe
Lokicious,You are right about the spilt milk.I will get down to the business at hand.Pen Fed, My father qualifies me but I don't want to involve him.The NMFA organization is running a discounted membership if you go to their sight. I may go that route at least for a smallportion if I can get past the paperwork.I suppose the Monemarket funds will be going down if the Treasuriesstay down. I read some place that they generally lag behind the treasuries by 180 days.Pappy
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