Comments on: How the Shifting Economy Changes (and Doesn’t Change) Personal Finance Advice

By: kristine

kristine — Thu, 16 Jun 2011 01:11:19 +0000

Steve,
please elaborate- which funds?

By: ben

ben — Wed, 15 Jun 2011 18:29:10 +0000

I started a CD ladder a couple years ago, when rates were on their way down, but I’m still sticking with it. The ebb and flow of interest rates doesn’t matter much to me, it’s more important for me to have the ladder process in place.

I also don’t feel that I sacrifice much liquidity. At ING the early withdrawal penalty is three months interest, which is a small price to pay in the event that I NEED that money. Such a situation would be large enough where I wouldn’t care about the small loss of interest on that particular CD.

By getting the ladder setup and the process autmated, when the interest rates on CDs go back up, I will be all set to automatically get those rewards without having to scramble and setup a ladder.

By: the other Tammy

the other Tammy — Wed, 15 Jun 2011 16:26:46 +0000

People don’t understand that they can’t keep doing things in the same old way they used to. It is hard to live off of CD interest when CD’s drop to 0.5% (our bank’s 12 month CD rate as of today). They need to research other options to guarantee their monthly income, but they are afraid to…they just keep rolling that 12 month CD, hoping rates will rise–just like they’ve done for the past three years. Meanwhile, they could have been earning 4% or more in an alternative investment. They are losing money by waiting.

By: Josh

Josh — Wed, 15 Jun 2011 16:03:48 +0000

This is why savings dollars are always best inside a life insurance policy, you will gain tax free growth around 4 percent and have complete liquidity and access to your money.

By: jackowick

jackowick — Wed, 15 Jun 2011 15:02:32 +0000

Thank you for writing this. Talking finance with friends, family, coworkers has been like throwing feathers in a pillow fight for the past five years. Everyone insists they are right because

A) you are rejecting old and proven advice or..
B) you are rejecting new trends and insights based on the current markets.

Personally, I love laddering CDs and I still have some I roll over, but it’s not as high of a priority right now. If I have an immediate need for emergency cash, I’m okay with keeping more cash in traditional accounts than a CD, because of current rates. But part of a CD that helps with money discipline is keeping the money out of sight, out of mind. If I drop my ATM check card and someone gets my PIN, there are more barriers to get my money in the CD (yes I get my money back from fraud charges, but the point is reducing collateral damage and clean up mess. Having my mortgage payment “temporarily” missing from my checking is a big deal, but I could still move a CD to cover a due payment during the turnaround time etc etc. Please don’t pick on the details, you either get the main point or you don’t…)

And going back to this article’s theme, why do people regard it as a “mistake” or “wrong” when you reevaluate and change strategy?

By: Tamara

Tamara — Wed, 15 Jun 2011 14:26:22 +0000

I saw today that my SmartyPig interest rate dropped from 1.35% to 1.1%, I just started my e-fund back in April, I don’t have a lot in there & haven’t gotten my first interest disbursement yet but it’s still kinda disheartening.

By: Daniel

Daniel — Wed, 15 Jun 2011 13:47:23 +0000

I used to ladder my emergency fund in CD’s but have not for quite awhile due to the low rates. However I have a large emergency fund of 6 months and have recently been thinking about putting some of that money (less than half) into Series I Treasury Bonds that are currently at 4.6%. Any thoughts on these? I know you can’t cash them in for at least a year but after that the money is good to cash in if you ever need it for a 3 month interest penalty. These are paying considerably more than my online savings account at 1%. I was thinking about laddering into the Series I bonds with half my emergency fund or less. Any thoughts?

By: Tom

Tom — Wed, 15 Jun 2011 13:33:57 +0000

I like that the very first comment on your link back to 2007 says “I’d like your opinion on this in Sept 2010.” Close enough.
The 1% rule seems very similar to the rule people use when they’re deciding to refinance a mortgage. How long of a time horizon do you look at Trent? up to 18 months?

By: Sandra

Sandra — Wed, 15 Jun 2011 13:22:16 +0000

I recently redeemed a CD that was going to renew at 0.4%. And yes, that number is correct.

By: Steve

Steve — Wed, 15 Jun 2011 12:27:57 +0000

My emergency fund is a combination of savings, laddered CD’s and some funds that pay monthly dividends. The philosophy is to add money automatically to the savings. When this gets to a certain dollar amount, I roll some of it into a CD that fits my ladder. We have approximately enough in CD’s to pay our living expenses over 6 to 9 months. Finally, and with some risk, I have taken some of the funds and have purchased some monthly funds that generate income between 4 and 10% monthly. Yes I have increased risk, but I also have a monthly return for my emergency fund that is 5%.

By: Holly

Holly — Tue, 14 Jun 2011 23:55:17 +0000

It’s still a good idea in my mind to ‘park’ your EF in a place that’s less easy to get to, i.e. a cd, esp. if you feel ‘rich’ if your accounts are flush with cash. You can still get to the money if it’s really necessary…you will just forfeit a small bit of interest to do so. With the interest rates at such low rates it’s hardly a penalty.

By: J.D.

J.D. — Tue, 14 Jun 2011 21:31:25 +0000

Where oh where do I invest my emergency fund?

By: Steve

Steve — Tue, 14 Jun 2011 21:01:18 +0000

The other problem is that some mainstream advice seems to change with the zeitgeist. When the housing market is going up, you get articles about how to buy a house, find creative financing, why buying is always a good deal, etc. When it’s going down, you get articles about selling in a down market, why it’s ok to rent, etc. Most of this advice is NOT timeless.

By: krantcents

krantcents — Tue, 14 Jun 2011 20:08:28 +0000

It is funny how we make it so complicated! The simple truth is spend less than you earn! It is a little like diets. There are thousands of diet books which really say the same thing. Eat less and burn more calories.