[Bay Kid]

Originally Posted by manaboutown

I remember the fed rate got up to about 19% in the early 1980s. Those were crazy unstable times IMHO. These are crazy unstable times, too, but for different reasons and in different ways. I have no idea where it will go so remain defensive, in short term T-bills except for good solid stocks I have held a long time such as BRK.

My amortization book had rates up to 23% back then. Owner financing was 12-13%. Cash was king when buying property.

[CoachKandSportsguy]

Originally Posted by melpetezrinski

5% interest risk free is too good to pass up. I just locked in a MYGA @ 5.4% for 5 years in a retirement account. It's my first foray into annuities, so I didn't commit much.

the question is why use an MYGA annuity instrument for this purpose in an IRA? What is the advantage over buying 5 year CDs, 5 year treasuries or 5 year corporate bonds with similar interest rates?

Second, did you pay a front end load fee for this annuity?
Third, since there is no taxes in an IRA, why pay for a tax deferred annuity?

thanks, just curious as to what am i missing as this is not my first, second or third choice for IRA instruments. .

[retiredguy123]

Originally Posted by CoachKandSportsguy

the question is why use an MYGA annuity instrument for this purpose in an IRA? What is the advantage over buying 5 year CDs, 5 year treasuries or 5 year corporate bonds with similar interest rates?

Second, did you pay a front end load fee for this annuity?
Third, since there is no taxes in an IRA, why pay for a tax deferred annuity?

thanks, just curious as to what am i missing as this is not my first, second or third choice for IRA instruments. .

The answer is simple. The salesperson delivered a great, but dishonest, sales pitch and made a huge commission.

[retiredguy123]

Originally Posted by CoachKandSportsguy

the question is why use an MYGA annuity instrument for this purpose in an IRA? What is the advantage over buying 5 year CDs, 5 year treasuries or 5 year corporate bonds with similar interest rates?

Second, did you pay a front end load fee for this annuity?
Third, since there is no taxes in an IRA, why pay for a tax deferred annuity?

thanks, just curious as to what am i missing as this is not my first, second or third choice for IRA instruments. .

According to Federal law,

"All financial advisors who provide advice regarding retirement plans must act as fiduciaries and put their clients' interests ahead of their own. The new rule is designed to help investors avoid conflicts of interest that can result in lower returns, higher fees, and other adverse outcomes."

In my opinion, recommending a taxed deferred annuity to invest IRA funds, which are already tax deferred, is not acting as a fiduciary.

[melpetezrinski]

Originally Posted by CoachKandSportsguy

the question is why use an MYGA annuity instrument for this purpose in an IRA? What is the advantage over buying 5 year CDs, 5 year treasuries or 5 year corporate bonds with similar interest rates?

Second, did you pay a front end load fee for this annuity?
Third, since there is no taxes in an IRA, why pay for a tax deferred annuity?

thanks, just curious as to what am i missing as this is not my first, second or third choice for IRA instruments. .

The best I could do on a 5 year CD is 4.7% (any higher and they are callable), T notes 4.1% and I could get close (low 5's) at A- corporates but not interested. No fees, so I really didn't "pay" for the tax deferred aspect.

[melpetezrinski]

Originally Posted by retiredguy123

The answer is simple. The salesperson delivered a great, but dishonest, sales pitch and made a huge commission.

Obviously, the answer is NOT simple since you make assumptions and accusations that are incorrect. Also, if a tax deferred product gives you the best ROI for your time horizon, risk profile and tax implications, who cares if it's in an IRA.

[MandoMan]

Originally Posted by manaboutown

The Fed rate, that is. Many of us remember the 1970s and 1980s and what happened back then, high inflation, very high interest rates.

How can a portfolio be positioned in preparation?

Any ideas or suggestions?

According to a couple friends who are big boys in banking and mutual funds, interest rates will be lower by year’s end than now, the inflation rate is going to drop a lot, and if there is a recession, it will be short and small. Paul Krugman is saying the same, and some analysts in the WSJ, and I hear also some major European banks. Maybe they are all just trying to raise our spirits, but it was enough for me to put everything back in stock-based mutual funds.

[daniel200]

Originally Posted by retiredguy123

Not sure I understand your post. Typically, if you buy a new Treasury bond and hold it until maturity, you will pay income tax on the interest earned annually, regardless of the term of the bond. There are no capital gains. The only way to earn capital gains on a Treasury bond is to buy it at a discount and sell it for a higher price than you paid for it. Are you buying over-the-counter bonds at a discount?

I prefer to purchase Treasuries on the secondary market (Fidelity) and not newly issued bonds. A bond that was issued at 1% will trade at a discount so that its total yield to maturity (interest plus capital gains) is similar to current yields (about 4.6% for a 2 year t-bill) … So if I buy a 1% bond that matures in 2 years; I will pay taxes on the 1% interest yearly. When the bond matures in 2 years, I will have a long term capital gain of (4.6% - 1%) x 2 = 7.2% when i file my taxes

[Vermilion Villager]

Originally Posted by melpetezrinski

Borrow at 1% and invest at 2,3,4%. This is the main reason why we are in an inflation crisis. The fed kept rates too low for WAY too long. Do you remember when rates were actually negative in certain countries? Why wouldn't you borrow free money? We are the land of consumerism. Of course we are going to borrow and spend. Household debt just reached a record 16 TRILLION. Household debt surpasses $16.5T in Q3 amid inflation, rising demand: NY Fed report | Fox Business. Of course companies are going to borrow to grow their business. Heck, even Apple is borrowing money with a staggering 51 BILLION dollars in cash. Something is rotten in the state of Denmark and it's not my $1 eggs.

Not going to be getting myself in jail for being political but I believe the time you were referring to is 2018 to 2020. I seem to recall a lot of "tweets" by a particular individual strong arming the Fed chair to keep the rates low… It just so happened there was an election on the horizon at the same time. Hmmmm.......
Pretty sure history will too put this in the proper perspective.

[Two Bills]

Originally Posted by Michael G.

I remember in the 80's when interest rates were high.
I also remember leaving work one day when interest was 19%
Went to the bank and borrowed $5,000 at 12% and invested it at 19%.
Ay.... to be young again.

Wife and I had reached the stage where we were serious investors in the 80's.
Gave us the early retirement and comfortable old age we enjoy now.

"God bless the 80's!"

[Captainpd]

Originally Posted by manaboutown

The Fed rate, that is. Many of us remember the 1970s and 1980s and what happened back then, high inflation, very high interest rates.

How can a portfolio be positioned in preparation?

Any ideas or suggestions?

And you want investing advice from a community board full of +60 people?? Really. JMHO but there are people that you pay to manage your money.

[Captainpd]

Originally Posted by MandoMan

According to a couple friends who are big boys in banking and mutual funds, interest rates will be lower by year’s end than now, the inflation rate is going to drop a lot, and if there is a recession, it will be short and small. Paul Krugman is saying the same, and some analysts in the WSJ, and I hear also some major European banks. Maybe they are all just trying to raise our spirits, but it was enough for me to put everything back in stock-based mutual funds.

Wow. A couple of big boy friends in the investing world. Gotta be solid info there.

[jimjamuser]

Originally Posted by manaboutown

I remember the fed rate got up to about 19% in the early 1980s. Those were crazy unstable times IMHO. These are crazy unstable times, too, but for different reasons and in different ways. I have no idea where it will go so remain defensive, in short term T-bills except for good solid stocks I have held a long time such as BRK.

I agree about BKK......good long term investment.

[manaboutown]

Originally Posted by Vermilion Villager

Not going to be getting myself in jail for being political but I believe the time you were referring to is 2018 to 2020. I seem to recall a lot of "tweets" by a particular individual strong arming the Fed chair to keep the rates low… It just so happened there was an election on the horizon at the same time. Hmmmm.......
Pretty sure history will too put this in the proper perspective.

This graph shows the fed rate was brought way, way down in 2009 - historical lows? - and was held there until late 2015, early 2016 when it started to be brought back up into a more normal range. Then it was brought back down to almost nothing again in 2020. Federal Funds Effective Rate (FEDFUNDS) | FRED | St. Louis Fed

[CoachKandSportsguy]

Originally Posted by daniel200

I prefer to purchase Treasuries on the secondary market (Fidelity) and not newly issued bonds. A bond that was issued at 1% will trade at a discount so that its total yield to maturity (interest plus capital gains) is similar to current yields (about 4.6% for a 2 year t-bill) … So if I buy a 1% bond that matures in 2 years; I will pay taxes on the 1% interest yearly. When the bond matures in 2 years, I will have a long term capital gain of (4.6% - 1%) x 2 = 7.2% when i file my taxes

this is called tax efficient investing, whereby you buy for capital gains versus interest income, using the same instruments, treasury or corporate bonds. .