Thursday, August 24, 2006


The Prof's Financial Advice
What To Do When Your CD's Mature

Being a part-time banker myself, I am often answering the question, "what do I do when my CD (or CD's) mature? What do I do with the money?"

I hate to deviate from the common theme of the page, but the issue is stuck in my mind right now. I have had to answer this same question, perhaps forty different times today.
Many people reinvest their CD money into other CD's, especially because short-term rates recently have been rising. Although CD's, even very short-term ones, can be appropriate as part of your overall portfolio, I don’t believe it’s a good strategy to own too many CD's without also owning some longer-term bonds.

Most people own bonds and CDs for the income they provide. You could be putting your long-term goals at risk by owning too many short-term investments. But if CD rates drop and your CD matures, you may have to invest your money at a lower rate, which will reduce your amount of income.

Investment Alternatives

Before automatically reinvesting in CDs, consider some alternatives to help provide income:

Equities that Pay Dividends – Stock investments that historically have paid and increased, dividends can help provide rising income over time. Ask your investment representative about stocks that are believed to offer good value today. Dividends can be increased, decreased or totally eliminated at any point without notice.

Ladder Bond Maturities – Even though short and long-term interest rates are close together right now, it may not stay that way. Many people own short and long-term bonds but neglect the middle of their ladder. I believe that many intermediate-term bonds offer attractive rates with less volatility than those on the
longer end of the ladder (& I like solidity and dependability). By buying bonds with different maturities, you will have money coming due at different times and can be exposed to a variety of interest rates.

Plan Ahead
Most people never ask the investment question until they have to. If you have money coming due in the near future, plan now to make the choices that make sense to you.

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