Market Watch

[ultrarunner]

So yes my 1980s and 90s public education didn't teach us about CDs, investments, banking, etc. So I did a little "Googling" on the topic.

So currently let's say you get a CD at 5% fixed. You have $10,000 you can put into it. It's a five year CD. So, the money is going to earn $500 bucks annually for five years. At the end of the term your $10k turned into $12.5k.

So you're sitting on the money for FIVE YEARS and can't use it, and when that time is up you've only gained $2,500 bucks?? And, if inflation continues that $2,500 is, in practical terms, nothing? That sounds like a horrible proposition. First of all, nobody knows what's going to happen in five years. Hell I might not be alive in five years. Second, with market volatility like it is, that gain from the CD might actually turn out to be worse than if you'd used that cash to remodel a house or buy something you need while the item is cheaper. I just can't see myself finding a CD useful. When rates were low it would definitely not be worth it but even today I don't really see the benefit.

Turns out I see why my 1980s education didn't teach me CDs and investments. All those things are is gambling, and gambling is illegal in Kentucky.

You can pull money out anytime with interest penalty plus some offer step up CD where once during the term you have the choice to step up should a better rate be offered.

I’m ok with a 5% CD and a 2.75 fixed mortgage…

 

[MoKelly]

You can pull money out anytime with interest penalty plus some offer step up CD where once during the term you have the choice to step up should a better rate be offered.

I’m ok with a 5% CD and a 2.75 fixed mortgage…

In finance, there is no single answer for everyone. Each persons unique financial situation, and mental state on risk v little risk, dictate what is best for them. We should never criticize anyone’s financial choices. It’s their decision and they make the decision best for them at the time and what allows them to sleep at night.

By the way - I’m in no way saying you critisized anyone’s choices.

 

[ultrarunner]

The deceased husband of the widow selling the home I bought said her husband hedged investments in gold and silver coins, guns and ammo.

They found the guns and ammo breaking into 3 safes but never found any coins.

I keep thinking someday I might get lucky

 

[Cahaba Valley Farm]

So yes my 1980s and 90s public education didn't teach us about CDs, investments, banking, etc. So I did a little "Googling" on the topic.

So currently let's say you get a CD at 5% fixed. You have $10,000 you can put into it. It's a five year CD. So, the money is going to earn $500 bucks annually for five years. At the end of the term your $10k turned into $12.5k.

So you're sitting on the money for FIVE YEARS and can't use it, and when that time is up you've only gained $2,500 bucks?? And, if inflation continues that $2,500 is, in practical terms, nothing? That sounds like a horrible proposition. First of all, nobody knows what's going to happen in five years. Hell I might not be alive in five years. Second, with market volatility like it is, that gain from the CD might actually turn out to be worse than if you'd used that cash to remodel a house or buy something you need while the item is cheaper. I just can't see myself finding a CD useful. When rates were low it would definitely not be worth it but even today I don't really see the benefit.

Turns out I see why my 1980s education didn't teach me CDs and investments. All those things are is gambling, and gambling is illegal in Kentucky.

Fixed income investments like treasuries and CD's are not aimed at people with 10k to invest. They are for people who have hundreds of thousands to millions to invest. It's more of a preservation tool than a growth tool.

 

[Cahaba Valley Farm]

In finance, there is no single answer for everyone. Each persons unique financial situation, and mental state on risk v little risk, dictate what is best for them.

Kind of how it is with buying tractors.

 

[Torvy]

In reality, it’s all gambling. Stock market, real estate, banking sometimes it’s just a matter of the lesser of evils. Real estate has been the safer bet in the past.

For some people it is gambling. If you did what real investors do at a table in Vegas, you'd find yourself in the Black Book of people not allowed to gamble.

Savings rates are meaningless. If you want to earn money versus inflation, you cannot simply use banking products to do so. Seldom, if ever, has it been possible in history. Investing, even with just a little study, is typically going to outperform inflation. Over the past 50 years, the S&P average has beaten inflation by an average of 7 percentage points. (Roughly 3% inflation versus 10% roi). Actual investors do better since they don't tend to use the S&P.

 

[check]

My Kubota dealer is the same.

Last weekend, I had to attend a funeral for my good friend’s dad who recently passed. My friend inherited his Kubota L3901 tractor but, couldn’t find the keys. On my way to the funeral, I stopped by the Kubota dealer to buy him some keys to the tractor. I paid $22 for a pair of keys! I don’t know what they normally cost, or what they’ve cost in the past but, $22 is insane! I’m gonna have to start shopping around. I’m happy to help out a friend but, my dealer certainly isn’t helping me out.

Mike

That’s cheap. When I lost one of my F150 keys, it cost me $400 to get a new one! Highway robbery to be sure.

 

[CloverKnollFarms]

I'll use CDs if I want to have growth over a short period. Investments are too volatile to use them for short term gains in my experience. If my horizon for needing the cash is under 36 months, I prefer a guaranteed rate of return. For two years the market has been hammered, not great if you had a need for those funds. Long term we average over 10%... Short term has been abysmal. It usually is

 

[Rdrcr]

That’s cheap. When I lost one of my F150 keys, it cost me $400 to get a new one! Highway robbery to be sure.

Apples to Oranges. I'm assuming your F150 is modern. Meaning your 'keys' have a transponder to communicate with the ignition module and additional electronics that perform a multitude of functions (lock, unlock, tailgate, possibly remote start, etc.) including a theft deterrent. Moreover, your F150 keys require programming to function with the vehicle.

The Kubota L3901 key, is just a key. A shaped piece of metal that turns a cylinder. It doesn't have any fancy electronics and serves no other purpose than to start the tractor. The $22 I paid for two keys is heroically expensive and out of line.
In this day, age and inflation, I feel $10 would be reasonable for a pair of L3901 tractor keys.

Mike

 

[milkman636]

Fixed income investments like treasuries and CD's are not aimed at people with 10k to invest. They are for people who have hundreds of thousands to millions to invest. It's more of a preservation tool than a growth tool.

Exactly. setting up multiple 5%+ cds maturing at regular intervals over the next few years is basically safeguarding a future income stream than can periodically be drawn on or reinvested at a future time. Having cds might save a person from selling other assets to raise cash when the markets are not favorable. Or they may provide capital for a future opportunity that a person is not aware of yet. There are few safer places to squirrel away funds that don’t have a specific purpose right now.

 

[drumminj]

Exactly. setting up multiple 5%+ cds maturing at regular intervals over the next few years is basically safeguarding a future income stream than can periodically be drawn on or reinvested at a future time. Having cds might save a person from selling other assets to raise cash when the markets are not favorable. Or they may provide capital for a future opportunity that a person is not aware of yet. There are few safer places to squirrel away funds that don’t have a specific purpose right now.

This really gets into having a balanced portfolio that allows you to weather volatility, especially if you're retired/drawing down on your investments. CDs/cash-equivalents are good for exactly what you describe - not needing to sell volatile assets that are currently down.

Would be interesting to have a thread on this topic.

 

[Cahaba Valley Farm]

CDs/cash-equivalents are good for exactly what you describe - not needing to sell volatile assets that are currently down.

Well said.

 

[check]

My SIL teaches high school and actually covers a lot of this using real world examples. He tells the students "you've moved away from home so you're on your own, your salary is $6,000 per month, illustrate where and how you plan to live." The first obstacle for some is when they learn they will take home less than $5,000, from a $6,000 salary. Then there's rent, utilities, transportation (they soon realize the new SUV they were planning on is out of the question), food and entertainment, clothing, on and on.

We did the same with our children and actually they loved learning it. We'd show them pay stubs with what my wife made and what came out. Then what costs to budget for; house payments and mortgage interest, budgeting for taxes, utilities, escrows for car and home maintenance, grocery, and more. They were most astounded by how much was withheld from pay and the amount of money we were paying in interest on our home (the rate was 14% IIRC at the time).

We kept our daughter apprised as well. LOL I remember the first time she saw our income tax return. She almost had a heart attack when she saw how much we had to give away to the government for income tax. Thus, the birth of a tax hater!

 

[Milo]

We kept our daughter apprised as well. LOL I remember the first time she saw our income tax return. She almost had a heart attack when she saw how much we had to give away to the government for income tax. Thus, the birth of a tax hater!

Mine's a tax hater too. She about flipped when they got the personal property tax bill in northern VA for their truck and Tahoe!

 

[MoKelly]

We kept our daughter apprised as well. LOL I remember the first time she saw our income tax return. She almost had a heart attack when she saw how much we had to give away to the government for income tax. Thus, the birth of a tax hater!

It is fascinating to see how your children change their ideas going from college to working.

Once they actually experience where their salary goes - Fed income taxes, state income taxes, FICA, city earnings tax - they are shocked! They see 35% disappear and begin to question why.

 

[stevem5215]

Teaching kids about the cost of living and what expenses etc there are is a part of growing them up. If you just keep giving them money they'll still keep looking for the money even when older. I once asked a friend of mine how he did it with his kids. He just said he told them they will have to pay for their own college education so they better figure out what degree will make them the money needed to succeed. And amazingly they did succeed.

 

[Torvy]

^we did something similar. From the time they were old enough to understand, we let them know college was something for which they were responsible.

 

[2manyrocks]

The great thing about computer spreadsheets is you can build a budget spanning several years and then use them to show how different spending and investment patterns can either cost someone or put them ahead 5-10 years from now. It can take the appeal right out of buying that shiny new car. You can talk about it and get ignored, but seeing the numbers tends to get someone's attention.

 

[Torvy]

The great thing about computer spreadsheets is you can build a budget spanning several years and then use them to show how different spending and investment patterns can either cost someone or put them ahead 5-10 years from now. It can take the appeal right out of buying that shiny new car. You can talk about it and get ignored, but seeing the numbers tends to get someone's attention.

I used (and shared) spreadsheets with my students to illustrate that concept and give them a tool to do their own budget.

 

[ultrarunner]

My brother told his kids they better have scholarships to pay for college and they all did.

They are all pretty savvy on money having a dad that is self employed.