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General Investing => Fixed Income Focused => Topic started by: Townie on January 05, 2019, 10:54:40 AM

Title: Getting started with bonds
Post by: Townie on January 05, 2019, 10:54:40 AM
Hello - i've invested in stocks for many years, but have never invested in bonds, CDs, treasuries etc. I want to diversify my portfolio by beginning to purchase some relatively lower risk fixed income investments. Problem is i have no idea how to get started on this. Where do i even go to purchase a CD ? Can i use my TD Ametridtrade account to purchase some sort of bond index funds to get started ? Or should i see an advisor given i know nothing about this area ? Grateful for any advice for someone new to this type of investing !
Title: Re: Getting started with bonds
Post by: AdamJane on January 05, 2019, 01:07:53 PM
I mainly invest in NY individual municipal bonds (no bond funds) that are Federal and State tax free. You may want to buy them if your State is financially strong. I specified my muni bond criterias and how I buy them in the following post.

https://www.financialsamurai.com/forums/stocks-and-index-funds/advice-on-which-muni-funds-to-buy/msg1972/#msg1972

For CDs go to a bank or self service brokerages like Fidelity or your Ameritrade acct.
- Citibank has a 13 months 2.47% CD.

For Municipal bonds, I use Fidelity and you can use your Ameritrade acct.

Adam
Title: Re: Getting started with bonds
Post by: tylerdurden03 on January 05, 2019, 01:33:09 PM
I use Schwab.  In Schwab there is a link to trade bonds (muni's, treasuries, CDs, corporate bonds etc).  If you want to build some experience you can try buying short term CDs or short term (say less than 6 month) treasuries. 

FYI there is a clear benefit to investing in short term US treasuries than CDs - US treasury income is not taxable at the state level whereas CDs are and currently at least on the schwab platform US treasuries are actually yielding more than CDs for less than 12 month bonds. I can't figure out why anyone would buy short term CDs vs short term treasuries...
Title: Re: Getting started with bonds
Post by: svytraveler on January 14, 2019, 08:09:44 AM
I am posting, not to try to convince anyone, but it helps me to write out my thought process and confirm what I am doing still makes sense.  I  see that all the CDs with terms of less than 1 year earn less than the rates for comparable term Treasuries.  However, for me at least right now,  the better comparison would be for CDs with terms 1 year or greater, and then I see that all the CDs that Schwab lists all earn more than comparable term Treasuries. So I would really need to figure out whether the savings on my state tax rate makes up for the spread between the CDs and Treasuries.  Cherry picking the best CD rates with terms of at least 1 year at www.depositaccounts.com/cd and building a CD ladder, or as Sam has recommended, a CD step stool, seems like a better plan for me. 

Honestly, I have never considered purchasing a CD with a term less than a year unless it had a stellar standout rate.  Generally, however, those promotional CDs have a cap that may not make it worth messing with unless you are already a member.  (The Keesler Federal Credit Union jumbo 7 month at 5% with no cap was an exception.)  For short term, I also use reward checking accounts in the 3-4% range, which also have a cap of $25-30k.  I can see that as I build my cash reserves, that may become unmanageable and maybe then I should consider short term Treasuries or Vanguard Federal Money Market/Vanguard Treasury Money Market for simplicity. 
Title: Re: Getting started with bonds
Post by: tylerdurden03 on January 17, 2019, 09:35:37 PM
Quote from: svytraveler on January 14, 2019, 08:09:44 AM
I am posting, not to try to convince anyone, but it helps me to write out my thought process and confirm what I am doing still makes sense.  I  see that all the CDs with terms of less than 1 year earn less than the rates for comparable term Treasuries.  However, for me at least right now,  the better comparison would be for CDs with terms 1 year or greater, and then I see that all the CDs that Schwab lists all earn more than comparable term Treasuries. So I would really need to figure out whether the savings on my state tax rate makes up for the spread between the CDs and Treasuries.  Cherry picking the best CD rates with terms of at least 1 year at www.depositaccounts.com/cd and building a CD ladder, or as Sam has recommended, a CD step stool, seems like a better plan for me. 

I am migrating my entire "cash" portfolio at Schwab to all treasuries.  I dont think CDs make sense anymore (FYI I live in a high tax state).  I do have a ladder going on and am buying different tenors of treasuries up to about 2 years.  Treasuries up to 1 year are a no-brained as you mention and for 1 to 2 year money the pickup in yield for CDs isnt worth it to me to even try to do the math about the savings.  The reason is there is another aspect here and that is that with treasuries you can easily and cheaply get out if you need to by selling them.  The bid ask is very low and although rates may move the 2 year treasury you buy today will be a 1 year treasury and odds are fair 1 year rates a year from now wont be much higher than today given the risk of a recession.  Just my two cents.
Title: Re: Getting started with bonds
Post by: Eric on January 20, 2019, 06:32:53 PM
Tyler Durden... Love your screen name. Please tell me you write for zerohedge.
Title: Re: Getting started with bonds
Post by: Townie on January 26, 2019, 02:11:48 PM
thanks everyone these are really helpful suggestions. I'm going to start with purchasing a CD - i found a good 12 mth CD with capital one at 2.6%. I'm also opening the saver bank account with CIT at around 2.4%. Then i'm going to investigate municipal bonds. As a high tax payer in california these would be a good bet for me. I will take some time to read through the link on municipal bonds above as this is all new to me so i dont know which to buy. I'll then look for a bond ETF i can purchase to diversity my portfolio. Lots to learn ! Thanks everyone.