29Apr/093
Welcome to CD MAX RETURN
We invite you to share information and comments that have helped you with your Certificate of Deposit investments.
We invite you to share information and comments that have helped you with your Certificate of Deposit investments.
June 12th, 2009
Appreciate the feed back. I agree that we are probably at the bottom of the barrel in terms of interest rates, so who wants to go long now? So let’s explore that a little bit.
Let’s say rates start to go up. Do you want to go long then? Heck no, they could go higher right? When will you want to go long? At the top, right? Do you know were the top is? I don’t!
Do you want to get on the wave only at the top, or are you willing to ride the wave to the top? Do you have patience, and a strategy, or do you want instant gratification? That’s what got us into this mess in the first place.
Okay, so you want to stay short and have the flexibility to take advantage of rate increase. Let’s look at a sample local Mass. bank. North Easton Savings Bank is offering a 6 month CD with 1.25% APY, a 12 month with 1.6% APY, and an 18 month with a 1.85% APY. The blended yield, if you invest the same amount in each is 1.57% APY. Not great, but better than 1.25% for staying short.
Let’s further speculate that rates will go up and six months from now an 18 month CD will earn 2% APY. Your six month CD is maturing and can be rolled into this new opportunity and improve your yield to 1.82%. Not quite 2%, but pretty close, and your entire portfolio is not locked in for 18 months.
Every six months thereafter you can roll one third of your investment into the current newer rate. If rates start back down you have a cushion to avoid a dramatic drop.
Appreciate your feedback on these comments.
June 13th, 2009
I could agree to subscribe to your strategy if I kept my investments in very short term CDs with a good portion in a risk free product that would give me the flexibility to pounce on a sudden and probably brief jump in rates. In today’s market, I surely would not commit to a 2 or 3 year term. Thank you for your thoughts and timely response.
July 8th, 2009
Investing in CD’s is for those who are deliberate, methodical and long term focused investors who want to who are willing to trade some opportunistic strategies that allow a degree of flexibility (ability to “pounce”) with the maximum return until that opportunity appears. And, the next opportunity appears, etc. Committing your entire portfolio to a “pounce” locks you in again. Staggering maturies does two things, 1st) it maximizes return on the current series of investments, and 2nd) it insures that a portion of the portfolio is always available for “pouncing” when opportunities arise. Ideally you want some portion of the portfolio maturing almost every month.
Reference the opportunity to grab a brief uptick in rates, I’m not sure that is what is going to happen. Maybe that will happen, such as the 3.75% rate (5 yrs) from Mechanics Co-Operative Bank in Taunton, MA. However, more likely we will see a gradual increase in rates when, and if, inflation kicks in. I remember CD rates in the 80’s being 18%. Do you want to wait for that, or do you want to ride that wave to the top and be just under the curve?
I’ll ride the wave and take the guess work out of it.
To go back to the Mechanics 5 yr CD. I hope to take advantage of that. About 15% of my assets will role next month from 5.35% (3 yr). Moving 15% to 3.75% will dilute my blended yield much less than if I had everything in one investment (100%) that was rolling over.
The same effect occurs when rates are gong up. No I won’t get the highest yield, but I will track just under it if I have staggered my maturies.
I’m not a palm reader or mystic, so I want to play the game I can adapt to in small increments and still have flexibility to catch the next wave with a portion of my investments.
Thanks for participating in this dialoge with me. I appreciate it.