The problem with that ladder is the top rates tend to be clustered at the same small set of banks, especially for IRAs.
Do not put more than $250,000 at any one bank.
In the above ladder, every year you roll over the expiring 12-month CD at the bank then offering the highest 5-year rate.
If that puts you over the $250,000 limit, then find another bank.
Related: Perfect Investment to Protect Cash
My initial assumption was a $1,000,000 portfolio. As long as fear of gold is not extreme, then $800,000 in a bond ladder with another $100,000 in gold and another $100,000 in gold miners seems reasonable.
The more adverse one is to risk, the more one should put on gold and less on miners.
One who is more fearful of gold can go 90-10. At a 90-10 ratio, even if gold were to fall in half over five years, the portfolio would still have a gain.
Rather than a treasury or CD ladder, one can opt for extremely high quality individual bonds held to term. Such bonds would include Apple, Google, and Microsoft. Those companies are not going bankrupt.
The important point is to build a bond ladder of hand-picked individual bonds as opposed to bond funds.
GMO Projects real (inflation-adjusted) negative returns in US stocks and bonds, every year, for the next seven years.
GMO offers this disclaimer.
*The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance.
Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward‐looking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years.
Measuring the Bubble
If one assumes 2.2% inflation per year, then the nominal decline is on the order of -3.4% per year for seven years.
Compared to Hussman, GMO is outright optimistic. In Measuring the Bubble, Hussman forecast stocks will decline by two-thirds over twelve years.
I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say “… and this is where they completely lost their minds.” As I’ve regularly noted in recent months, our immediate outlook is essentially flat neutral for practical purposes, though we’re partial to a layer of tail-risk hedges.
I side with Hussman, but even GMO’s optimistic forecast would crucify pension funds.
If either GMO or Hussman is remotely on target, those in a treasury, CD, or extremely high-quality corporate bond ladder of individual issues will be the ones smiling.
It’s simplistic to advise investors to “sell” – somebody else has to buy. If your horizon is less than 10-12 yrs or couldn’t tolerate a ~60% drawdown in the interim, evaluate your risk seriously. If you disagree with my work/evidence/concerns, you’re the right investor to go long.
Trump Anxiety vs Investment Anxiety
Another sleepless friend has “Trump Anxiety”. She is worried about everything Trump says and does.
Her doctor tells her “Trump Anxiety” is running rampant.
I cannot help with “Trump Anxiety” but an extremely conservative portfolio structured as above will minimize investment anxiety.
What are we doing? I am mostly in gold, miners, and cash. My wife is mostly in a portfolio of extremely conservative individually selected bonds.
This article has been republished with permission from Mish Talk.