Money Markets and CD's

How liquid do you want this investment to be? What is your timeframe for needing it? Will you need it all at once, or could you divide it into tenths, where one tenth would be available every month to move around?

The Federal Reserve's benchmark rate today at 3% stands about where it did in early 2005. To fight inflation, I think the Fed will start raising it again within nine months. With interest rates, we could see some kind of repeat of 2005-2007. See

In early 2005 I constructed a CD ladder going out seven years. The longest maturity ones were one-time adjustable, which I wanted because rates were going up. In the coming two years+, I did adjust one of these CDs. By about mid-2006, when the Fed finally stopped raising the benchmark once a month, the lower maturity CDs (paying 3.7%-3.9%-ish) were paying way less than money markets (at 5%-ish). Now the remaining CDs are paying way more than today's new CD offerings of comparable maturity. The ladder "is working." The overall yield of the ladder is high compared to prevailing money market rates. Admittedly from mid-2006 to mid-2007 I was questioning whether I'd properly researched interest rates etc. before constructing the ladder in 2005. This was probably an exercise in 20/20 hindsight. Fact is I am meeting my goals with this ladder.

Due to (1) radical adjustments to the benchmark rate and (2) some banks needing money on deposit to deal with delinquent mortgages, and some not, CDs seem to me to be adjusting somewhat erratically these days, very much like early 2005. Today, with this experience under my belt, and if forced to construct a brand new CD ladder, I would wait at least two months from now for things to settle down (that is, stick with your low paying Schwab money market account). Or in the alternative, I would construct a ladder going out maybe two to three years, with rungs six months apart, using bankrate.com as a guide to what's a good rate. When the benchmark rate was back up to around 4.5% or so, and assuming my needs were still consistent with laddering, I'd build a full-blown five year ladder.

Two cents and nothing more. Mostly, use your best information, live within your means, and don't beat yourself up if you don't get "the very best" deal with CDs and money market. Chances are with a little effort you will do better than most. The few who "beat" your returns with CDs were simply lucky in their speculation.

Check out

They have sample portfolios aswell.

This worries me. Why do you have no choice? Chasing yield is usually a bad idea. Chasing yield out of desperation is almost always a bad idea.

Unless you understand stocks pretty well, you are not likely to choose good ones (or know if the ones being recommended are good.) High yielding stocks are often distressed stocks with a good chance of going down in price and/or cutting dividends. You have to be able to read the company's financial statements and understand the company's business to know whether the dividend is secure.

Be careful out there.

-- Doug

thanks-it is scary-Utilities with a track record is what I am getting

Thanks for the link. Any thoughts on how stable some of these banks are that are offering high CD rates?