PilotRPI
Line Up and Wait
I-bonds are pretty sweet right now paying about 7%. If you don't need cash in the next year it is a good option.
Thoughts on current airplane market
- Thread starter mnewb1
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Mahneuvers
I pretty much only invest in index funds. For money I don't need for a while, I like Fidelity Zero Total Market Index. For money I expect to need w/in 1-2 years, I like ultra short term bond index funds but even at that duration they get hammered in a rising rate environment. Options are few to park funds somewhere that at least keeps pace with inflation that also does not take a dive the same time the economy does. I'm still investigating TIPS. So far I'm thinking they would have been good if you already were in them, but, apparently you don't want to be in them in the short term when inflation is on the decline.
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Vintage Snazzy (so my adult children say)
Ditto. My flavor is Vanguard. Index Stock funds, no bonds, etc. Market crashes, no worry - just means its cheap to buy. Continual investing and let it ride......
Crashnburn
Pattern Altitude
For short term goals, either money markets, TIPS, or short term bonds. Over the long term stocks outperform, but it could take several years for the market to recover from a correction.
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Mahneuvers
I was introduced to Clark Howard on the radio living in Atlanta in the 90s. Here are his thoughts on what to do w/ cash:
Less Than One Year: Purchasing Soon
Making your splash purchase in less than 365 days? Stick to high-yield savings accounts, Clark says.
Yes, inflation is eating away at the value of your dollars daily. Yes, you’re earning a pittance as you help provide banks with the liquidity to finance their loans. But you don’t want to lose the money you’ve earmarked for an important purchase this close to the time you’re planning on making your transaction.
You won’t be earning much (about $0.50 for every $100 over the course of 12 months, minus income tax). But that’s less risky and better than keeping the money in cash.
It’s possible to explore shorter-term Certificates of Deposit (CDs). But if the interest rate increases, you may be locked into a lower rate than you’d get from your savings account.
Short-term CDs (less than one year) often offer an incredibly small advantage in interest rate. And even if you have six months or more, it can be nerve-wracking to lock up those funds unless you know your buy date with absolute certainty.
One to Three Years: Purchasing in the Intermediate Term
High-yield savings accounts are still an option, Clark says. Especially at the lower end of this range.
But you can add CDs and Series I bonds to the list of Clark-approved options if your timeline is one to three years.
With a CD, you’re giving up liquidity for a specified time (barring a financial penalty) in exchange for an interest rate that can outpace the savings account APY at that institution.
A Series I bond can be an attractive option if you expect inflation to linger for a good while. Right now, the fixed rate for an I bond is 3.56% every six months, or 7.12% annually. That number will get re-adjusted every six months.
At a minimum, with Series I bonds, you’re going to avoid a big-time, inflation-induced loss of purchasing power on this money. That can be a big relief, especially when you’re hounded with inflation headlines every day as interest rates remain historically low.
Keep in mind that you can’t cash your Series I bond until the one-year mark. And if you cash it out in less than five years, you’ll have to pay a penalty equal to three months of interest.
Three to Five Years: On the Cusp of Investing
If you’re this far away from your big purchase, you may be the most tempted to take risks and be aggressive. And you’re not totally wrong.
This is a long time to leave large sums of money in a savings account earning less than 1% interest. And who knows how long big-time inflation will linger?
Good news: You can add ultra-short-term bond funds to your arsenal of potential choices.
It’s important to stick to ultra-short-term bonds, Clark says, because the time frame lowers your risk as interest rates rise. You could still lose money, though — especially in the short term.
For example, with heavy discussion of potential Fed rate hikes, the Vanguard ultra-short-term bond index fund was down nearly 0.6% through the first 53 days of 2022.
“The odds that you would lose money over a three, four, five-year period in an ultra-short bond fund — I mean, you’d have to be the unluckiest soul out there to lose money over that period of time,” Clark says.
Final Thoughts
It’s tempting to invest some or all of your money for a purchase that’s less than five years in the future. But the shorter your available time, the higher your risk — even if you’re diversifying your investment into a total stock market ETF.
Luckily, if your timeline is longer than one year, you can do a few things to out-earn the poor rates you’re currently getting at even the best savings accounts.
Incidentally, it’s not a great time to buy a car or a house as of early 2022 due to inflation. So these strategies could be super helpful to you if you’re waiting on the markets to self-correct.
Less Than One Year: Purchasing Soon
Making your splash purchase in less than 365 days? Stick to high-yield savings accounts, Clark says.
Yes, inflation is eating away at the value of your dollars daily. Yes, you’re earning a pittance as you help provide banks with the liquidity to finance their loans. But you don’t want to lose the money you’ve earmarked for an important purchase this close to the time you’re planning on making your transaction.
You won’t be earning much (about $0.50 for every $100 over the course of 12 months, minus income tax). But that’s less risky and better than keeping the money in cash.
It’s possible to explore shorter-term Certificates of Deposit (CDs). But if the interest rate increases, you may be locked into a lower rate than you’d get from your savings account.
Short-term CDs (less than one year) often offer an incredibly small advantage in interest rate. And even if you have six months or more, it can be nerve-wracking to lock up those funds unless you know your buy date with absolute certainty.
One to Three Years: Purchasing in the Intermediate Term
High-yield savings accounts are still an option, Clark says. Especially at the lower end of this range.
But you can add CDs and Series I bonds to the list of Clark-approved options if your timeline is one to three years.
With a CD, you’re giving up liquidity for a specified time (barring a financial penalty) in exchange for an interest rate that can outpace the savings account APY at that institution.
A Series I bond can be an attractive option if you expect inflation to linger for a good while. Right now, the fixed rate for an I bond is 3.56% every six months, or 7.12% annually. That number will get re-adjusted every six months.
At a minimum, with Series I bonds, you’re going to avoid a big-time, inflation-induced loss of purchasing power on this money. That can be a big relief, especially when you’re hounded with inflation headlines every day as interest rates remain historically low.
Keep in mind that you can’t cash your Series I bond until the one-year mark. And if you cash it out in less than five years, you’ll have to pay a penalty equal to three months of interest.
Three to Five Years: On the Cusp of Investing
If you’re this far away from your big purchase, you may be the most tempted to take risks and be aggressive. And you’re not totally wrong.
This is a long time to leave large sums of money in a savings account earning less than 1% interest. And who knows how long big-time inflation will linger?
Good news: You can add ultra-short-term bond funds to your arsenal of potential choices.
It’s important to stick to ultra-short-term bonds, Clark says, because the time frame lowers your risk as interest rates rise. You could still lose money, though — especially in the short term.
For example, with heavy discussion of potential Fed rate hikes, the Vanguard ultra-short-term bond index fund was down nearly 0.6% through the first 53 days of 2022.
“The odds that you would lose money over a three, four, five-year period in an ultra-short bond fund — I mean, you’d have to be the unluckiest soul out there to lose money over that period of time,” Clark says.
Final Thoughts
It’s tempting to invest some or all of your money for a purchase that’s less than five years in the future. But the shorter your available time, the higher your risk — even if you’re diversifying your investment into a total stock market ETF.
Luckily, if your timeline is longer than one year, you can do a few things to out-earn the poor rates you’re currently getting at even the best savings accounts.
Incidentally, it’s not a great time to buy a car or a house as of early 2022 due to inflation. So these strategies could be super helpful to you if you’re waiting on the markets to self-correct.
Radar Contact
Pattern Altitude
I enjoyed Neal Boortz even more. He was a pilot and kept several planes in the ATL area. Bring on a Flat Tax.
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Mahneuvers
I completely forgot about Boortz until you mentioned him. Yep. I remember enjoying his show as well. Was a pretty good radio lineup all around.
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I seem to recall that Boortz flew a Mooney, didn’t he? Is he still flying?
Boortz definitely spelled his first name correctly.