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May 14, 2009 2:25 pm

Need ideas...


I have a client that is rolling over a large CD, does not want to purchase another because rates are poor. Here are his criteria:


1) Little/no risk with some explicit guarantee


2) Short duration (has been buying 1 year CD's)
 
3) Yield that is greater than a CD
 
I know it seems easy, but I am having a hard time finding ideas. Thanks for any idea you can offer...I'll even take the inevitable smart @$$ comments
May 14, 2009 2:56 pm
iceco1d:

How "large" is large?





This large...





CD

May 14, 2009 2:59 pm
Incredible Hulk:
iceco1d:

How "large" is large? 



This large...


CD

 
 
 
Large is $200k+.
May 14, 2009 2:59 pm

3 year fixed annuity is your only option if it is available on your platform. Usually they can get 10% withdrawals each year and if they need the entire amount out they would lose interest only, no principal.

May 14, 2009 3:45 pm

Well, I guess it depends.  We don't know this, but what if the client intends to just turn the thing over in perpetuity?  If that's the intention, what about short/mid-term tax-free (or taxable) muni?  A little more principle fluctuation, but much better interest rate, and will get their money back.  It's marketable, but will see the hit for the discount initially.


However, I guess it only fulfills two of those requirements.  However, you culd ask hiim which he has more faith in, the bank and FDIC, or the record of municipalities.  He might need some education.
May 14, 2009 3:50 pm

Structured CD

May 14, 2009 3:55 pm
B24:

Well, I guess it depends.  We don't know this, but what if the client intends to just turn the thing over in perpetuity?  If that's the intention, what about short/mid-term tax-free (or taxable) muni?  A little more principle fluctuation, but much better interest rate, and will get their money back.  It's marketable, but will see the hit for the discount initially.


However, I guess it only fulfills two of those requirements.  However, you culd ask hiim which he has more faith in, the bank and FDIC, or the record of municipalities.  He might need some education.
 
This might be an understatement!  I've been running in to this also.  They want their cake and to eat it too.  The people I've talked to even 3 years is too long.  This is the dilemma we're running into.  Guaranteed short term with better rates than CD's.  I wish I had more info to offer you but I'll be checking back to see what others are telling you so I can tell some potential clients.  This guy is a CD buyer, probably always has been now he's upset with the low rates.  Once rates bounce back he'll probably go back to them.
 
That advice is only worth 1 cent!  Actually I'm not sure there was any advice in there.  Oh wait, there wasn't.
May 14, 2009 6:44 pm

I would buy a single pay life policy.  I guarantee you that within a year I am going to end your life you stupid SOB.  Meets all three criteria and you get paid to boot.

May 14, 2009 8:45 pm

if your client has plenty of other CDs and can handle something else and wants some yield I have been using 3 bond funds:  Franklin Templeton Gov Securities fund..yielding around 4.20% and is 100% GNMA's, Pimco Total Return, yielding around 5.50%, and a plain vanilla muni bond fund... I am in MS and use MFS MS tf yielding 4.40% double tax free.  Again, this might work if your client has another 200-400k of cds and really doesn't really need this money to be in a cd.  I use C shares... your cd buyers aren't gonna go for a load and if they want some growth potential get them to reinvest the intrest in a growth and income fund.

May 14, 2009 8:48 pm
Sam Houston:

I would buy a single pay life policy.  I guarantee you that within a year I am going to end your life you stupid SOB.  Meets all three criteria and you get paid to boot.

 
 
Well played !
May 14, 2009 8:50 pm

CD buyers typically stay CD buyers for a reason- they want no risk and they understand CDs. If there is any downside risk in what you suggest, make sure it's abundantly clear prior to purchase.

May 14, 2009 9:04 pm

I would show him a short-duration muni fund, short corporate bond or fixed annuity for some of the money. ... It's probably going to take him a while to feel comfortable doing much more than 10 or 20k.
I have a CD buyer like this but he's gradually worked his way up to buying a couple of corporates and we've looked at fixed annuities. I haven't made any money from him, but he's easy to please and gave me a good referral for my trouble.








May 15, 2009 7:16 am

I find that there are two versions of CD buyers - those who are happy to get 3% on a 3 year renewal and those who are open minded to the idea of peeling off a chunk for more upside. It's good for your sanity to figure out which of these categories your client is.

 
Thankfully fixed income is presently working so that chunk if done in the last 6 months is smoking their CD return. Some CD buyers need to stay CD buyers.
May 15, 2009 8:53 am

I have the feeling it is going to be a waste of my time, but I am just new enough that I need to try everything. I have had the muni conversation with him before, he doesn't trust state and local governments (thanks a lot, California). He says "he doesn't like to speculate". He doesn't trust insurance companies. Come to think of it, I doubt he really trusts me.

 
Now that I think about it, I am certain this will be a waste of my time...sigh...
 
Maybe the single pay policy with the one year mortality guarantee would be the best option .
May 15, 2009 9:39 am
Chuck:

if your client has plenty of other CDs and can handle something else and wants some yield I have been using 3 bond funds:  Franklin Templeton Gov Securities fund..yielding around 4.20% and is 100% GNMA's, Pimco Total Return, yielding around 5.50%, and a plain vanilla muni bond fund... I am in MS and use MFS MS tf yielding 4.40% double tax free.  Again, this might work if your client has another 200-400k of cds and really doesn't really need this money to be in a cd.  I use C shares... your cd buyers aren't gonna go for a load and if they want some growth potential get them to reinvest the intrest in a growth and income fund.

 
If you use C shares then the client isn't really getting that 4.2%... it's more like 3% with a 1 year CDSC, so if he wants to get out then he pays again, so now he is down to 2%...same as a CD..
 
Overall not a bad idea, but certain people buy CDs and there is nothing we can do for them if they aren't willing to take our advice..
May 15, 2009 9:40 am

Funny.  Ask him if he doesn't trust an insurance company, or the state and local government, why is he trusting his money to a bank, an insurance company (FDIC), and the federal government?  People are so incredibly stupid and irrational.  

 
I think the better question is, which you may know the answer to but just didn't tell us, what's the money for?  If it's retirement income, that's one conversation.  If it's emergency funds, that's another.  If it's legacy money (pass it on to the kids, but I need to keep it just in case), that's yet another conversation.  If you don't know the answer to that question you really can't help him.  And you don't really want to. 
May 15, 2009 9:41 am
Gordon Gekko:

I find that there are two versions of CD buyers - those who are happy to get 3% on a 3 year renewal and those who are open minded to the idea of peeling off a chunk for more upside. It's good for your sanity to figure out which of these categories your client is.

 
Thankfully fixed income is presently working so that chunk if done in the last 6 months is smoking their CD return. Some CD buyers need to stay CD buyers.
 
I echo this and the post before... Throw the money in a CD again, but ask him to try something new (say 10-15%) in another income investment that may do better over the long run..
May 15, 2009 1:59 pm

Do you have access to Equity Linked CDs ?   A CD combined with an equity index investment.  CD portion guarantees return of principle in a worst case situation, equity index portion provides enhanced return in a positive market environment.

Maybe a portion in something like this, remainder in CDs ?

What is the client's tax bracket ?  If high enough, short muni's may make sense.

May 15, 2009 5:34 pm

I agree with a short duration bond fund.....class C. The one I use is yielding just over 4% and is up about 7.5% YTD. It's mostly high grade corporates and agency notes. I've had tons of CDs mature this month and we've moved quite a bit over into these types of funds.



I'd document your meeting though, if he's a true rate shopper/saver, your best bet might be to walk

May 15, 2009 6:08 pm
SometimesNowhere:

I have the feeling it is going to be a waste of my time, but I am just new enough that I need to try everything. I have had the muni conversation with him before, he doesn't trust state and local governments (thanks a lot, California). He says "he doesn't like to speculate". He doesn't trust insurance companies. Come to think of it, I doubt he really trusts me.

 
Now that I think about it, I am certain this will be a waste of my time...sigh...
 
Maybe the single pay policy with the one year mortality guarantee would be the best option .
 
Ask him how certain he is that if his house burns down he'll collect the insurance on it.
 
I'm sure he's insured his health, life, home, valuables and vehicles. Why not insure a portion of his savings?
 
Makes sense to me.