I’m 40 years old with a household income around $120k. I keep $6k in a money market for bills, $92k in an SP500 index, $15k in bitcoin, and $20k in CD ladders. I don’t have a retirement account except for Social Security, as I’m a contractor with a decent wage but no benefits.
For most of my life, I lived paycheck to paycheck and never had the chance to invest. Once I had extra money, the first thing I did was buy $20k of CD ladders (1-year, 5-year, and in-between) with an average 5% return.
Most of my other money went into SP500 index funds (FXAIX), which has done way better than the CDs, and now I feel like I made the wrong move. Should I keep these CDs? When they mature, should I put that money into my SP500 index funds? What role do CDs actually play in a portfolio?
CDs are mainly for locking in money you know you’ll need soon, like a big purchase in a few months. You could also use a CD ladder to simulate an emergency fund. It’s not really for investment, more for squeezing out a bit of extra interest on cash you’ll need soon but not right away.
That makes a lot of sense. My CDs are basically just sitting there like a savings account, but I don’t need that money. Maybe I should move the funds once they mature. I can use my money market for emergencies—it’s just as good and more liquid. Thanks for your help!
Just keep in mind that right now, money markets are doing better than CDs, but that’s not always the case. Usually, CDs offer a little more interest but lock up your money. For someone working, a money market or high-yield savings account is probably better because it’s easier to access for unexpected expenses.
Don’t sell yourself short! If you’re here asking questions, you’re definitely smart enough. A financial advisor might not be necessary at this point. Try looking up ‘Financial Order of Operations’—there’s plenty of info online to guide you through the basics.
A money market fund could work well for you. Just remember, it’s unusual for short-term rates to beat long-term ones. Right now, rates are expected to drop, which is why shorter terms are doing better. Normally, locking in your money for longer gets you a better rate.
CDs are more about safety. If you’re saving for something like a house and don’t want to risk losing that money, a CD can be a safe bet to earn a bit of interest without the risk of the stock market.
I used to do CDs too, but then I realized my money market account was giving me the same interest with more flexibility. For things like cars or weddings, I just use my money market and pull it when I need it.
Thanks! Your approach sounds way better than mine. My CDs aren’t earning much more than my money market, and they’re harder to access. I’m going to look into this.
Just so you know, some parts of that article aren’t fully accurate. Treasuries are also a solid option and very liquid. They can be a good strategy depending on your goals.
Honestly, it’s mostly for convenience. I have accounts with BoA and Vanguard, and I didn’t want to open another one elsewhere. It’s easier to keep everything in one place for me.
I see fixed income like hiding cash under the mattress. When you need it, you get it back with a little extra on top. I prefer locking in with a high-yield ETF that I can cash out whenever I need.
It’s a personal choice. If you’re getting a 5% return on your CDs, that’s actually a decent rate. If they’re callable, the issuer might call them if rates drop, but for now, it’s a safe investment.
I really appreciate the info!