January 24, 2023

By Chip Wagner –

Financially speaking, 2023 will be a bumpy road. volatile interest rates and high energy costs, the prospect of a recession, continued supply chain problems, the ongoing war in Europe, and (last but not least) politically-induced defaults on sovereign debt. A threat is expected.

One ray of hope: BONDS is currently paying its highest yield in over a decade. This follows the worst ever performance of the bond market. However, CD yields have increased dramatically. One conservative way to make a profit without speculating about the future direction of interest rates is to build a short-term maturity CD ladder with a brokerage CD that currently pays about 4%.

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First few definitions:

• CDs A certificate of deposit issued by a bank. These are insured by the FDIC and issued for various time periods.
• Intermediary CD that is Issued by banks and resold by brokerage firms, they usually bear higher interest rates and are FDIC insured.
• CD ladder teeth A portfolio of individual CDs maturing on different dates (e.g. 6 months, 12 months, 18 months, etc.). It helps investors average interest rate bets and avoid guessing about the direction of interest and timing the market.

The advantage of investing in short maturity (duration) brokerage CD ladders is that not only do you avoid pesky early withdrawal penalties, but when each CD matures, you can determine if the rate is good enough to reinvest. It is possible. If so, you lock in a favorable rate for the new term. If you decide not to, you can cash out and look elsewhere for a better return.

Establishing the discipline of rolling over successive short-term brokerage CDs can help investors weather fluctuations in interest rates. Many have stayed for short periods of time, from 6 months to 24 months, and as mentioned above, now he’s in the 4% range. Another advantage of Brokerage CD is that interest is paid to depositors periodically instead of compounding.

A Brokerage Account is required to purchase Brokered CDs. If you are already working with a financial advisor or financial planner, you can ask them about purchasing an intermediary CD.

By investing in laddered brokered CDs, you can take advantage of the strong rates that come to market rather than speculating that rates are rising and waiting for single CDs with bullets to become available. can.

Reasons for creating a CD ladder

Bonds are currently paying their highest yields in over a decade. This follows the worst ever performance of the bond market. However, the yield of CDs increased dramatically.

One conservative way to make a profit without speculating about the future direction of interest rates is to build a short-term maturity CD ladder with a brokerage CD that currently pays about 4%.

By investing in laddered brokered CDs, you can take advantage of the strong rates that come to market rather than speculating that rates are rising and waiting for single CDs with bullets to become available. can.This should smooth out the bumpy roads in 2023

Chip Wagner is a longtime member of the Rotary Club of Tarrytown. Now retired after 38 years at Merrill Lynch, his new mission is to educate people to manage their finances wisely. This spring he is teaching two of his classes at Westchester Community College.

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