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This personal blog has primarily been fo... and more...
This personal blog has primarily been fo...This personal blog has primarily been focused on finance over the past years. In the upcoming months it will start to primarily revert to my insights on history and nautical information -- topics I have also always had a passion for as well. I hope everyone enjoys the evolution of this blog and some further insights on everything from North Carolina to the age of sail. New financial posts by me can be found over at https://kineticinvesting.substack.com/ • View comments • Track comments •
Unlocking Financial Success with CD LadderingA significant concern in recent years is how to invest the fixed income component of your portfolio. Depending on your age, risk acceptance, and investment objectives, most people have 20% to 60% of their portfolio in fixed income investments such as bonds. Unfortunately, bonds have been doing terribly over recent years in a rising interest rate environment. For example, the S&P U.S. Aggregate Bond Index is down 4.8% over the past three years; this is painful when investors were getting a mere 3 or 4% yield on bonds during this overall period. This leaves investors seeking an alternative investment to meet their fixed income objectives. The best alternative is using CD Ladders. It is not known where interest rates are going; however, the best bet from most market analysts is interest rates will continue to increase over the short term. Using a 2 year CD Ladder is a good method to ride out the short-term interest rate changes using a safe FDIC insured investment while also beating the rate of inflation. Understanding CD Laddering CD laddering is a strategy that involves spreading your savings across a series of CDs with varying maturity dates. The idea is to create a staggered or "ladder" structure, which allows you to access a portion of your funds at regular intervals while taking advantage of higher interest rates offered by longer-term CDs. As a the shorter team CDs mature; you will roll them into longer-team (the full-term time horizon for the ladder) CDs. Typically most investors consider a CD Ladder with a two year time frame as short-term time horizon, and a CD Ladder with a five year time frame as long-term. There are numerous websites (including NerdWallet) which describe how to configure a CD Ladder in detail – plus many videos on YouTube. Basic Description: How CD Laddering Works
Benefits of CD Laddering CD laddering offers several advantages that make it an appealing savings strategy:
A couple additional thoughts
Rather than opening accounts at multiple banks in an attempt to get the best yields for different CD maturities and having to keep track of everything; there is a much better alternative. Both Schwab and Fidelity offer FDIC insured brokered CDs from banks. You can search in their portals for the best yields for each maturity for new brokered CDs and perform all of your purchases in a single website. This makes tracking and following your CD ladder much easier; I also find that I get better yields since you can find the top yield across the U.S. when doing your purchase. There are also numerous CD Ladder spreadsheets available online for download. I am using the ExcelGeek's CD Ladder Spreadsheet to structure my 2 year CD Ladder strategy. This spreadsheet can be downloaded as a zip file from - http://www.mdmproofing.com/iym/files/CD_Ladder.zip There are also CD Ladder Calculator websites available online including -this one from Excel Bank - https://www.excel.bank/calculator/cd-ladder
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Interesting insights on Millennials wan...Interesting insights on Millennials wanting to retire at 50. https://www.userwalls.news/n/millennials-retire-50-afford-matter-3860838/ • View comments • Track comments •
NYT - They All Retired Before They Hit 40. Then This HappenedThe New York Times outlines the impact of the COVID-19 market crash on FIRE plans. Most FIRE plans made assumptions about strong, consistent market returns each & every year. Nearly none of the FIRE strategies model scenarios where the market falls 30% and does not recover for a significant period of time. Due to this many FIRE "retirements" are now in the flusher as well as suffering from travel restrictions to low cost areas to live (“geographic arbitrage). • View comments • Track comments •
Pouring Ice on FIREOver the past couple years there has been endless promotion of FIRE (Financial Independence, Retiring Early). Many of the advocates outline how saving hard while minimizing expenses will allow you to retire early - often while you are only in your 30s. YouTube videos and media provide all the basic math showing stock market investments over a decade followed by a 4% withdrawal rate.
The real problem with FIRE is that it does not take into account all the possible future scenarios. What happens if inflation greatly increases? (Most millennials have never experienced this). What is the consumer index on many core consumer items goes up greatly? What happens if the stock market greatly under-performs? Most FIRE articles assume that the stock market will continue to perform well over a decade period before you start withdrawing money. What happens if the market sinks for a decade? The primary failure of FIRE is that it does not plan for low, medium, and high scenarios in regards to market returns and inflation. Most FIRE planning scenarios are too simplistic; at minimum you should create a spreadsheet with assumptions about market returns, savings rate, inflation, and your expenses. This spreadsheet should be easily alterable so that you can plan a low, medium, and high scenario for review. Plan across all possible scenarios. Most FIRE scenarios assume a fixed 4% withdrawal rate. Withdrawal rates are a complex problem without a single fixed answer. Individuals must take a look at withdrawals in more detail. One good source of information is - The Ultimate Guide to Safe Withdrawal Rates – Part 19: Equity Glidepaths in Retirement One other item to note is that many FIRE plans promote saving with 401Ks and IRAs. Using 401Ks is important to get an employer match (effectively free money). The one detail that FIRE articles fail to usually mention is that while 401Ks / IRAs are tax-protected -- there are significant penalties for early withdrawal. Usually you will not be able to withdraw this money (without penalties) until long after you retired early. While I agree with many of the investing and savings concepts driving the FIRE movement, there is a need to pour some ICE on FIRE due to the lack of effective scenario planning and the failure to account for common life events. • View comments • Track comments •
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