Is market volatility taking a bite from your savings?
In a year with down markets, constant volatility and rising interest rates, investing in CDs or bonds could prove an efficient way to get your money working harder for you. They may have a smaller return compared to historic returns from the S & P 500, but the reduced risk could be an improvement on a negative return or no return at all.
Currently, there are CDs that are paying around the 4.5% range, and bonds that may pay up to 5%. And the Fed is continuing to raise rates.
CDs are usually considered fixed instruments, so rising rates won’t affect those that you hold now. However, by staggering your purchases and building a CD ladder, which will let us keep layering in new CDs at increasing rates, you may benefit from rising interest rates.
When considering a CD purchase, one important consideration is the term. Different interest rates will be offered for different durations. CDs also have the advantage of being FDIC-insured up to $250,000.
Another option you have to help your portfolio through market volatility is purchasing bonds. While they don’t have the insurance CDs have, they may pay a slightly better return to help compensate you for some additional risk.
There are a variety of bonds like corporate bonds, municipal bonds and even United State Treasuries. With bonds, you should consider the duration, quality and tax status. Different maturities will have different outcomes.
For example, one advantage of municipal bonds is the tax status. Currently, they are paying close to corporate bonds and can be triple tax-free – meaning they are exempt from federal, state and local taxes. And when you factor in possible tax benefits, you may actually be able to achieve a higher return than some corporate bonds.
If you have cash you’d like to get working more efficiently but are unsure of current market conditions, give us a call at 216-520-1711 to set up an appointment. We’re here to help!
Bonds are considered fixed income securities and if sold or redeemed prior to maturity may be subject to additional gain or loss. Bonds are subject to interest rate risk. As the prevailing level of bond interest rates rise, the value of bonds already held in a portfolio declines. Portfolios that hold bonds are subject to declines and increases in value due to general changes in interest rates. Rates based on Market Pricing as of 11/9/22.
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