- quote -

Thanks for that advice Andy

I've been thinking abt buying some iBonds..... will be
my first time ever doing so.

I didn't know what "length" to get. Sounds like 6
months is it, right?

Also...any advice on what face amts to get?

Elle wrote:
- quote -

I wouldn't even go out to 5 year bonds, or even one year bonds. The
spread between the 6 month T-bill and a 10 year Treasury bond is now
less than 1%!

To answer your first question, I can't say for sure since we haven't
yet had to pull any of our CDs out and switch to a higher-rate
institution, but we will next month since Ascensia has dropped out of
the high rate game. However, I am sure the hassle will be pretty
minimal, maybe 2 hours total to collect the money from one bank and
then open a new CD with another bank.

The spread on 6 month CDs between the high rate banks and the average
banks is around 1% these days. $10,000 * 0.01 * 0.5 (6 months) = $50,
which works out to about $25/hour for the effort it takes to get the
higher rates, assuming you switch banks every 6 months. To me its worth
it.

Andy

"Andy" <ineverevercheckthismailbox[at]yahoo.com> wrote
- quote -

And when the 6-month CD comes due and another institution offers a better
rate, do you also find it easy to close your account with the holder and
move on?

I just want to check on the process from end to finish. I don't mean to pick
on your strategy; rather, it's something I am considering. I am hesitant to
deal with all the paperwork, though. Potentially I could have accounts at
more than a half-dozen institutions, I figure.

Aside re long-term bonds: The following web site on bond yield curves over
the last few decades (cited here by Rich C. some time ago) pretty much
persuaded me never to buy long-term bonds for my bond/CD ladder, but rather
go out only about 5 years:
http://www.smartmoney.com/oneb*ond/i...ory=yieldcurve .

Elle wrote:

- quote -

My wife and I make it a regular practice to put our medium term money
(which is being saved up for either investing in real estate after the
real estate bubble deflates or in long term bonds once long term bond
rates get back to decent levels) in the highest rate 6 month CDs
available nationwide. We currently have CDs at Ascencia (which has
apparently recently dropped out of the high rate business) and IndyMac.
There have been no fees, and the hassle has been minimal; each one has
only taken an hour or two to do everything needed to set up the CD.

Andy

Will Trice wrote:
- quote -

I don't think I am recommending that anyone "time the market." The
stock market is not always a good place to be parking money; just ask
Warren Buffett, he has been hoarding cash, and not buying many, if any,
stocks in the last few years, because he doesn't think there are any
good values available.

All I am recommending is being patient and taking ones time and making
investing decisions based on a sound understanding of what one is
doing, and not just reflexively imitating what you see everyone else
doing.

Andy

shinypenny wrote:

- quote -

What kind of return are you seeing with the short-term bond fund?
With interest rates on the rise, I couldn't seem to find a
short-term bond fund with returns better than a money market
account like Emigrant Direct's, given the risk I would be taking.

Anoop

<me[at]privacy.net> wrote
- quote -

I would compare what they're yielding now to whatever CDs are yielding now,
sure. I imagine they're at least somewhat competitive. But there is the
drawback, if I recall correctly, of the interest penalty if not held for at
least five years. Also, the rules on EE savings bond interest changed
recently, such that I no longer will buy them. I don't know what's going on
with I bonds, but I'd read the detail carefully.

"SD" <siddharthgdalal[at]COLDmail.com> wrote
- quote -

I do not feel they're close enough to warrant rejection of one-year CDs. The
average rate for one-year CDs is currently 3.34%, with many over this rate.
I figure the OP could easily find a one-year CD yielding 3.75%, increasing
his/her yield 0.5% (at least initially). I don't sneeze at this difference.
And I think the laddering the OP proposed has sufficient flexibility for his
needs built into it.

To be more precise, in the city where I live, 3 out of 13 banks have a
one-year CD rate over 3.8% with a small minimum ($500 or $1000).

I guess you feel the difference is small enough to not care?

- quote -

I am going to stick with the original posters' interest in one-year CDs, so
as to try to be of help him/her. Thus I'm only comparing Emigrant Direct's
3.25% rate to one-year CD rates.

- quote -

What abt using iBonds?

On Tue, 2005-06-07 at 14:56 -0600, Elle wrote:
- quote -

But there is no point starting a 1yr CD ladder when rates are comparable
to savings rates. Maybe a ladder of 5yr CDs makes sense but then, I'd
not be a happy camper if rates went up a lot.

- quote -

or at least rent part of it out, like a friend of mine does.

"shinypenny" <shinypenny0001[at]yahoo.com> wrote
snip
- quote -

Is this a Roth or Traditional IRA?

Do you ever think about the fact that, in addition to the tax penalty,
withdrawing from one's IRA prematurely means there is that much less money
you have growing tax-deferred (if a Traditional IRA) or tax exempt (if a
Roth IRA)?

- quote -

IIRC, the penalty is a flat 10% of whatever you withdraw prematurely from
the Traditional IRA. Your tax bracket is irrelevant to the penalty amount.
(Roth IRA contributions, but not earnings, may be withdrawn without penalty
pretty much at any time, but like I say above, the catch is replacing the
money subsequently. Generally, you cannot.)

"SD" <siddharthgdalal[at]COLDmail.com> wrote
Andy wrote
- quote -

Seems like you folks are kinda just pushing down the yield further and
further, on the guess that interest rates are going up and so, say a year
from now, whatever an investor loses in yield for the next year (by not
going a little longer right now) will be made up by the higher rates after a
year... But really that's just a guess, right? You might be right, but
there's not much certainty you will be, right?

Andy, I was looking for 6-month CDs at bankrate.com today. Yes, there are
exactly three banks offering about 3.8%, but two of those have min deposits
of $10k and $5k, respectively. Also, I think one should mention that the
national average for 6-month CDs right now is a little under 2.7%

Still, I am curious: People who have tried to shop for and obtain the
absolute best CD rate in the nation, do you typically fnd that the bank that
has the best rate will not be suitable for you because of fees, long
distance hassles, moving money between accounts (which definitely seems to
be getting easier every year, granted), whatever?

As for Emigrant Direct et al.: I have seen this suggestion before, and it
appears to be on the up-and-up, with no strings attached other than I
presume these banks can change its fee structure at any time. But so can any
bank. So there is indeed a nice yield of 3.25% right now at Emigrant Direct.
How long does this person wait before buying into higher-yielding one-year
CDs? The longer he waits, the more income he may lose, right? Key word being
"may,"...

It just seems like you folks are missing the point of a bond ladder: Its
yield does grow (albeit in a step-wise fashion and not on a day-to-day
basis) as interest rates rise. It takes advantage of the typically higher
yields associated with longer maturities.

SD wrote:

- quote -

I agree with this. $41K seems like an awful lot of money to park in CDs
at his age, unless he's saving up to buy a house. If that amount is
purely for emergencies, it's probably too much at this age and stage of
the game. That's how much *I* have in my emergency fund, and I'm 40
with two kids, a mortgage, and a salary range that means it will
likely take me a long time to find a comparable job if I should lose
mine.

I think it's helpful to think through various emergency scenarios and
have plans set in place should you get laid off. For example, if you're
renting now, switching to a lower rent or getting a roommate might help
get through a layoff without needing to plow into savings and
investments. And if you decide to buy a house, consider buying one that
you can afford on your unemployment check.

jen

- quote -

I disagree with this. I recommend you get a book - e.g Get a Financial
Life - Personal Finance in your 20s and 30s. Read the pros and cons of
all the types of investments you can make and decide what to do
yourself. If you do feel queasy investing in individual stocks, try
mutual funds.

- quote -

Everyday the money sits around doing nothing for you is a lost
opportunity.

- quote -

41k is a lot of money to need for the short to medium term. And atleast
some of it if not all should go to the stock market because the earlier
you start getting higher returns the better. Also, in your young age,
you can afford to take on more risk. As you grow older, you should
reduce your risk.

- quote -

With the ability to get > =3% from savings accounts such as emigrant
direct and ING, it is pointless to get 6 month CDs at 3.8%.

- quote -

This cushion is enough for the short to medium term. Start investing the
rest - buy a house, buy some funds/stocks. you may lose some money, but
it is a starting point.

- quote -

I am in a similar position as you, except I am married.

SD

ayabech[at]yahoo.com wrote:
- quote -

I assume you mean stocks, right? I've been doing this, too, for years.
I just learned from my financial planner that I could've been doing
better: I had no value funds in my retirement portfolio. So just
because you're in stocks, take a hard look and make sure you have a mix
that includes not just large cap & market index funds, but also value
funds, and perhaps small caps, emerging markets, and some international
depending on your plan's options.

- quote -

Oftentimes companies are restricted to a range of 401K funds from one
financial firm that are not always the best ones you could pick. So you
might want to consider only contributing up to the percentage your
company matches, then automtically siphon off the rest into other
investments - you'll have more choice than just what your plan offers.


- quote -

When determining how much rainy day fund you need, you need to sit down
and calculate out how much you'd need to pay your bills if you got laid
off again. Calculate in unemployment income you'd receive, and any
severance. Figure that you will be at a lower tax bracket, won't need
to drive your car to work, no lunches out, etc. Since you've been
through a layoff before, you probably already have a fairly realistic
idea of how much you really need to survive another one. Pad the amount
a little so you can still enjoy the occasional movie and restaurant
meal to perk you up when you're down.

Then take that monthly "emergency" amount, and multiply it by the
number of months you expect to be out of work. Usually the standard
advice is 3-6 months. However, I've found that a good general guideline
that has proved valid throughout my working career is one month for
every $10K of salary you were making. For example, if you are making
$50K and get laid off, it's probably going to take you 5 months to find
an equivalent job. The more you were making, the longer it tends to
take, unless you're willing to take a substantial pay cut, but most of
us aren't, and employers are loathe to hire someone on at a lower
salary & position because they figure when something better comes
along, you're gone.

Once you arrive on the appropriate amount (which should be re-evaluated
every so often, as your salary and expenses increase), this is the
emergency fund you need to set aside. But it doesn't *necessarily* have
to be in something all that liquid, like CDs and saving accounts.
Depends on your stomach, your other resources, and your optimism, I
guess. :-)

In my situation this is what I do, since I have a small amount of
options I could cash in a pinch, another income coming into our
household, and confidence that I can survive a long time on
unemployment since I have in the past. I was once laid off for 9
months, and between severance, unemployment, prudent use of credit,
careful cost cutting measures, and the ability to pick up some
consulting work, I managed not to dip into my emergency fund at all. My
ability to do that was in large part due to the fact that while
employed, I deliberately kept my fixed expenses lower than I
*technically* can afford. IOW, I live fairly frugally even when I have
a steady income.

I have my emergency fund tucked away in a short-term investment grade
bond fund IRA and not in CDs. If laid off I'll be in a lower tax
bracket so dipping into it and facing the tax penalty isn't quite so
unpalatable for me. I view this is "true" emergency money, not
something I would be tempted to draw on unless a real disaster struck,
like both of us getting laid off the same time, the local economy
completely busting, a major long-term health crisis, or becoming
disabled and running out of disability insurance, etc. In which case I
figure the 10% penalty isn't going to bother me.

Additionally, I have about $10K in another non-IRA short-term bond fund
that provides check-writing capabilities. This fund is for unforseeable
emergencies (short of losing my job) like suddenly needing a new roof
before I'd planned, or major car repairs that hadn't been budgeted.

- quote -

Diversification is typically a good strategy, especially if the market
ups and downs put you on an emotional rollercoaster and make you feel
like a gambler.

With the assistance of a financial planner, I've now got my money
spread over 10 different asset allocation classes, including large &
small cap funds, value funds, international, emerging markets, real
estate and energy. Yep some people may say it's not wise to put the
money into things like bonds, real estate and energy at this point in
time, but the idea here is long-term investing and how the portfolio
does overall, not how one class is performing at any given time. Such a
mix takes out the volatility factor, and at any given point in time,
should I need to draw on my investments, I won't have to wait it out
because I put it all in something that's sucking wind at the moment.

Now that it's set up, I'll review and tweak it every year but keep it
in the same general proportions and classes.

You're doing really great for a 25 year old!

jen

Andy wrote:
- quote -

Andy,

How is the OP to know when the right opportunity arises? It seems that
you are asking a relative newcomer to successfully time the market.
Nevertheless, I agree that the OP should not be in a hurry.

-Will

ayabech[at]yahoo.com wrote:
- quote -

I think you are on the right track with your savings! I wish I had that
much saved up when I was 25! Here are my thoughts on your situation.

Since this 41K is your short to medium term money (as opposed to your
retirement money) I would urge you to not put any of it in stocks.
Stocks are good for money you will not need for 20 plus years so that
the ups and downs of the market are smoothed out. Money you might want
to use in the next 10 years should be in something more conservative.

I would not recommend being in a hurry to put any of your money into
something risky just because you feel like you should be doing
something more aggressive with it. Be patient and wait for the right
opportunity to arise.

I personally would put the whole 41K in CDs or treasury bills until you
find something really worthwhile to do with it. You will get a decent
rate of return with no risk for now, and when you come across a better
use for the money it will all still be there.

I would recommend going with 6 month CDs or T-bills, and not with 1
year ones. The interest rate premium on one year CDs as compared to 6
month CDs is just not enough to justify the reduced liquidity.

If you shop around you can get 6 month CDs for around 3.8% right now.

I wouldn't keep a total of $10,000 in checking/savings. Instead, keep
maybe 3,000 in checking/savings and have the rest in laddered 6 month
CDs so that you have a $6,000 CD coming due every month. That should
be more than enough cushion.

Andy

Just to get the ball rolling, some queries from a do-it-yourselfer who reads
a lot:

How much of your contribution to your 401k does your employer match?

Have you considered contributing to a Roth IRA in addition to your 401k?

So you have about $47k in savings right now. If you lose your job again, how
long do you think you'll be unemployed, and so how much money will you need
to support yourself? Create your rainy-day fund built around this figure.
Typically sites say to stash away 3-months to a year's worth of expenses,
but it really should depend on one's own knowledge of one's own job
stability. Laddered one-year CDs, like you described, are probably as good
an idea as any.

Do you plan to buy a house or condo in which to live? Plan to marry and have
kids?

Answer these questions, then maybe start learning about portfolio
allocation, which most likely will tell you that a person your age should
put more into stocks than CDs. A couple of free, nice, easy sites that will
give you quick and dirty suggested portfolio allocations:

http://www.smartmoney.com/oneasset/ (scroll over many of the words to get
explanations, or experiment with different figures until you understand what
the site is doing)

http://www.fincalc.com/ , click on "How should I allocate my assets?" on the
lower right.

You can then use a financial planner, if you wish, and you'll go in
prepared. Or keep asking questions here, and do some combination of DIY-er
with some help from a planner.

Good for you for saving so carefully!

<ayabech[at]yahoo.com> wrote
- quote -

25 years old. Have about $6k in a 401k (with the money distributed
wholly among "high risk" items, and from here on I'm contributing 12%
of my income to the 401k.) Then I have about $41k sitting in various
savings and checking accounts. I was figuring on putting $15k into six
1-year CD's that would be closing every other month (so I'm never more
than 2 months away from $2500 + interest.) That would be my rainy day
fund. I'd keep $5000 in my checking account (cuz, you know, I need
money to live) and maybe another $5000 in a savings account (just in
case?) What should I do with the rest? Are the CD's a bad idea to begin
with?

I figure (hope) my 401k will, over the next 30+ years have me set for
"the future" (retirement.) I want a relatively liquid rainy day fund (I
got fired once, so I know shit can happen) on hand. It's just that
whole time frame in the middle I don't know how to plan for. All I know
is that having so much money earning almost nothing in savings accounts
ISN'T wise. Invest in stocks? I guess I'd rather use a broker (if so,
any reccomendations for one)? I'm not the type who wants to be
constantly checking the market to make progress. I'd rather someone
with more experience and "knowledge," along with a full time devotion
to the task, handle that.