your thoughts, sounds like a brillient way to ride out the storm
RE: CDs. Advice from contraryinvestor.com (pay per view site):
Lastly, here's a little potential arbitrage on asleep at the wheel commercial banks. Always remembering that FDIC coverage of CD's only goes so far, of course. The first trick is to find a bank with a three month redemption charge on "breaking" a CD. Next, check the CD rate structure. Just as a hypothetical example, let's say you can find a bank paying 5% on a five year CD. Assuming that they offer the three month interest penalty option, the day you purchase the CD you are aware that your "back end load", so to speak, is 1.25%. If you only hold the CD for one year, you earn 3.75% (5% less the three month surrender charge of 1.25% or three months of interest). How many one year fixed income vehicles that are government insured offer that type of yield? Probably not too many. Certainly not Treasuries. If rates stay low, hold the CD. If they rise, you have two benefits. Your principal is always intact at any point in time (unlike a longer dated bond) and you have already factored in the cost of exit. For the conservative among us, find a bank with a three month penalty for early withdrawal and buy their longest dated CD (after doing the math for yourself, of course). After all, banks love "hot money", don't they? |
