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CDs and Muni Bond fund

By Terry Savage on January 23, 2021 | Chicken Money

My wife and I are moderately conservative investors (44% equities, 46% bonds, 10% cash CDs). We have CDs maturing this year and we are considering moving about $100,000 of these CDs to our Vanguard Intermediate Term Municipal Bond Fund to hopefully get a better return. However, in the past I have always worried about losing value in bond funds as market interest rates rise from their present very low rates. Any thoughts?

Terry Says

I agree. I am very wary of bonds losing value as rates, in general, start to rise. In fact I wrote about that a year ago — before the pandemic, in this article “Beware of Bonds.”

Of cours, during he pandemic the Fed has purchased all sorts of bonds, pushing rates down. So currently rates are artificially low. The question is whether the Fed can keep doing that in the face of more borrowing, more money creation — and an eventual market reaction that demands higher rates for refinancing our U.S.govt debt. Bonds are no longer the “safe” portion of your portfolio. And they are certainly NOT a substitute for CDs! Yes, you get no interest on CDs these days — but you won’t lose a penny.



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