Too many CDs & MM? How much is enough

[Surewhitey]

We had a CD early call by 3 months yesterday. We decided to just put it into MM getting 5.02% currently. Thought the extra cash would stress DW less for general funds spending.

Got me to thinking about how much we have in CD's and MM making 4.75-5% overall. I feel like we are too heavy, but I don't mind sleeping well without the worry too. We're about 30% in these things and most CD's are 4-5 years. Inflation is the only thing that I slightly worry about, but not much at the moment.

How much allocation is too much for you?

 

[audreyh1]

I just make sure my cash flow needs are covered. I make sure I have enough maturing of the next few months usually through the end of the year.

Generally funds I withdraw every Jan are invested in MM funds and very short-term CDs or T-bills. Otherwise as long as cash flow needs are met I don’t worry about it.

I have a target asset allocation for my retirement portfolio = the long term investments. That gets rebalanced as needed every Jan. It has both equities and fixed income.

 

[Palmtree]

My definition of "too much" has changed as I've gotten older. In my 40's and 50's I only held about 3 months in cash. Now I'm retired and in my mid 60's (retired). Our portfolio has done well over the past few years so I decided I wanted to live a SWAN life. (Sleep Well At Night) I figured out our baseline expenses and added 15%. Took that figure, subtracted out the current pension and then multiplied that by 10 years. That's how much I've currently got in I-bonds, and money markets funds. It that too much? Maybe for some but it works for me.

 

[cyber888]

My AA is about 60% equities - 40% fixed income. Fixed income assets earning 4.9% - 5.25%.
Since I'm retired, I will be spending the fixed income assets first as interest rates will probably declined in a year. So hopefully 65% - 35% or 70% - 30% when I get SS income 18 months from now.

 

[Midpack]

There is no right answer. My AA is 39.5% treasuries at the moment, but we don't need to take much risk anymore (see AA below).

 

[ShokWaveRider]

I am getting an average of 5.4% on my CDs and MYGAs. There is no max at those rates. May as well take advantage while you can. I am all in at about 90% of the stash. Cannot spend it, so it must be OK.

 

[Chuckanut]

I like the SWAN acronym. I’m going to combine it with the SKIING acronym. I will be a person who spends the kids inheritance during the day and then sleeps well at night. The Skiing Swan in action.

 

[Aerides]

Back when we had an FA, he recommended 3 years in cash. I liked that idea - enough to ride out any reasonable downturn without taking withdrawals at a time we'd prefer not to. In reality, it's not hard to find something to dump most of the time, but it works for me so far.

Does that mean we leave some earnings on the table that could have been in equities? Absolutely. Don't care. Once a year or so I look at our cash (CD's money market, etc.) and see if we have more than 2 years and as long as we do, I do nothing.

 

[Surewhitey]

I am getting an average of 5.4% on my CDs and MYGAs. There is no max at those rates. May as well take advantage while you can. I am all in at about 90% of the stash. Cannot spend it, so it must be OK.

Making me feel OK about our stash...

Back when we had an FA, he recommended 3 years in cash. I liked that idea - enough to ride out any reasonable downturn without taking withdrawals at a time we'd prefer not to. In reality, it's not hard to find something to dump most of the time, but it works for me so far.

Does that mean we leave some earnings on the table that could have been in equities? Absolutely. Don't care. Once a year or so I look at our cash (CD's money market, etc.) and see if we have more than 2 years and as long as we do, I do nothing.

I like the 3 years of cash... We're closer to 7 years, but I'm OK with 5% guarantee for now.

 

[erkevin]

Seems like this thread is paralleling the "won the game" threads of the past. I just upped our fixed assets (mm, cash, CDs) to 79%. The remaining 21% is in equities. Our pensions (non-COLA) cover 125% of our current expenditures, so I don't need to take on any more risk. Social security and medicare are still ahead for us so there is that additional cushion to look forward to. My only concern is when interest rates drop and I run out of CD ladder rungs (currently about 5%)......then what?

 

[Route246]

Seems like this thread is paralleling the "won the game" threads of the past. I just upped our fixed assets (mm, cash, CDs) to 79%. The remaining 21% is in equities. Our pensions (non-COLA) cover 125% of our current expenditures, so I don't need to take on any more risk. Social security and medicare are still ahead for us so there is that additional cushion to look forward to. My only concern is when interest rates drop and I run out of CD ladder rungs (currently about 5%)......then what?

Is it correct that you have a sustainable negative withdrawal rate from your investable assets? Of course you don't need any additional risk but what is your thinking regarding NOT taking on more risk which will certainly yield higher returns over a long time horizon? I'm just curious because you have certainly won the game and if so desired could take on more risk without jeopardizing your lifestyle.

 

[Dtail]

Is it correct that you have a sustainable negative withdrawal rate from your investable assets? Of course you don't need any additional risk but what is your thinking regarding NOT taking on more risk which will certainly yield higher returns over a long time horizon? I'm just curious because you have certainly won the game and if so desired could take on more risk without jeopardizing your lifestyle.

That is one of the top 10 topics here. If one has definitely won the game, then do they go all in equities or no equities? I haven't won the game but can see both sides of the equation making sense.

 

[dmpi]

Of our fixed income portfolio. Half is in 1-2 year CDs and T-bills and the other half is in a high yield money market (MM) account. The key is to make sure you have enough in MM to handle any emergency.

 

[Romer]

When Interest rates peaked, I built a 3 year ladder of 5.25 and 5% non callable CDs all in my IRA. The equities are all in my ROTH.

Between the CDs and Bonds in the IRA I have enough to fund us for quite a while along with my pension and the start of SS at 66 or 67 without needing to sell any equities or tap my ROTH

So right now about 35% in CDs and Bonds and cash in my bank MM

I wanted more certainty in the funds I will be needing and my plan only assumes a 4% ROI

You never know how the market will perform especially in these conflicting times. If it goes up I will look at possibly rebalancing and will ride it out for several years if it goes down keeping a careful and conservative eye out for opportunities

I will have to decide what to do when each CD matures with the funds of course

I don't see anything wrong in having a lot in CDs paying 5%, how does a 5% ROI fit into your plan?

 

[tominboise]

I keep about 5 quarters of cash in a mix of CD's and T bills. I manage the cash quantities on a quarterly basis and sell stock funds to buy fixed income if we start to fall below that amount. I am trying to manage our taxable income as we are on an ACA subsidized plan. I go on Medicare in Q1 2025 so some of that issue should go away. The stocks I sell are in our taxable brokerage account. We have yet to tap any IRA, pension or social security dollars.

 

[Evee]

William Bengen said 10% cash and under does not effect the 4% rule. So I would not go above 10%

 

[teej1985]

The 4% rule was for a 60/40 portfolio, right? 10% cash is on top of the 40% bonds or a component of it?

 

[Evee]

A component of it.

 

[audreyh1]

That is one of the top 10 topics here. If one has definitely won the game, then do they go all in equities or no equities? I haven't won the game but can see both sides of the equation making sense.

Right, either side if you truly have more than enough. It then depends on goals/priorities, preferences and comfort level.

 

[Badger]

That is one of the top 10 topics here. If one has definitely won the game, then do they go all in equities or no equities? I haven't won the game but can see both sides of the equation making sense.

Here is one of the sides from a 75 and 77 yr old. 45/14/41 Stock/Bond/Cash (CDs, MM). Retired. Investments are on autopilot for harvesting dividends/interest. No more investing in stocks. I use whatever cash I need/want although we are not high maintenance. No debt, no mortgage, medical is taken care of with Medicare and Tricare for life. NW continues to grow into way more than we will need. Being a bear of very little brain I don't pretend to know any of the financial calculations discussed here and my ability to use what I do understand may be starting to fade a bit. I don't see a good reason to continue playing the game to see how much more I can accumulate before we die. What would be a reason otherwise. But I do love to read all the posts here.

 

[MarieIG]

As long as the CDs are paying decent interest, I know where they are, I don't go above FDIC insurance limits, and I'm not out of equities completely, I'm not really concerned about having too many of them . . .

 

[Healthy Lifestyle]

Here is one of the sides from a 75 and 77 yr old. 45/14/41 Stock/Bond/Cash (CDs, MM). Retired. Investments are on autopilot for harvesting dividends/interest. No more investing in stocks. I use whatever cash I need/want although we are not high maintenance. No debt, no mortgage, medical is taken care of with Medicare and Tricare for life. NW continues to grow into way more than we will need. Being a bear of very little brain I don't pretend to know any of the financial calculations discussed here and my ability to use what I do understand may be starting to fade a bit. I don't see a good reason to continue playing the game to see how much more I can accumulate before we die. What would be a reason otherwise. But I do love to read all the posts here.

Thanks for sharing as I see myself thinking along your lines.

 

[Car-Guy]

Seems like I responded to a very similar question in a recent thread not too long ago. Anyway, I learned the hard way, not to go overboard with CD's. These days I keep enough cash in MM's to cover my needs, and then some. MM's are like cash to me and they pay almost as well as 12 to 18mo CD's, so it makes it an easy decision for me. (at least for now)

 

[Rianne]

45/55/5
55 in tIRA is in mid-long-term CDs and treasuries. Treasury coupons are 4%-4.5%. CD interest from 4.2% - 5.05%. We specifically set this up mid to long-term, 3 yr - 10 yr when interest rates drop we'll have a flow of income and keep our principal. DH took his pension buy-out. The interest flow makes more than the pension paid. And we wanted to make sure the principal remained. We would have paid taxes on the pension and the pension did have COLA.

 

[pb4uski]

Is it correct that you have a sustainable negative withdrawal rate from your investable assets? Of course you don't need any additional risk but what is your thinking regarding NOT taking on more risk which will certainly yield higher returns over a long time horizon? I'm just curious because you have certainly won the game and if so desired could take on more risk without jeopardizing your lifestyle.

It's a real dilemma but for us at this point in our lives, capital preservation is more important than growth because we don't need more growth. What we don't spend will go to our kids and the kids are already doing well so any inheritance will be a cherry on top.

I've split the difference. While I have some inherited common stocks, what might otherwise be in common stocks is in preferred stocks. My preferred stock portfolio is mostly investment grade credits and is yielding 6.85% but are much less volatile than common stocks; but somhat more volatile than bonds. Also, if interest rates decline as many expect, the value of these preferred stocks will increase dramatically. I think I can get more risk-adjusted return that than common stocks.