CD Alternative

How “large” is large?

[quote=iceco1d] How “large” is large?  [/quote]

This large…


CD

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.

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.

Structured CD

[quote=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.

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.

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.

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.

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.

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.

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.

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.

[quote=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.

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.  

[quote=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.

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.

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

[quote=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.

[quote=SometimesNowhere]

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

[quote=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.

40% Short Duration Bond Fund  (FALTX, CSDAX or something similar)

1) Little/no risk with some explicit guarantee

[quote=Sam Houston]

1) Little/no risk with some explicit guarantee

Denny’s gift card.   Funny because it’s true!  Denny’s, IHOP, Old Country Buffet.  A CD buyer’s idea of dining out.  Cheap and a lot of food. 

A short structured CD may or may not get a return greater than a CD.  Other than that, I like the structered CD idea a lot since I’m bullish.  One other thing I’ve played recently is very short financial bonds.  I recently did an 18-month Citi bond at 5.5% and a 2-year Merrill bond at 6.3%.  With the threat of nationalization fading and these still showing  A-rated, I think that is an acceptable level of risk for at least SOME of his portfolio.  Combine a few of those with a short CD and he’ll definitely get a better than average blended rate with a fair degree of safety.

Ask him what kind of women he likes.



Does he like attractive women?



Here is the risk table:



Penny stock - Smoking hot, famous actress/model/dream girl — You can ask her out, but you’ll likely get shot down



Growth stock - Good looking woman. You will have to ride the ups and downs of the crazy train if she says yes - may end in a breakup, may not



Dividend paying stock - Good looking woman. Down to earth. Will probably go out with you. You will become a better person because of it. May end in breakup, may not.



Bond – Attractive, steady woman. There is a little crazy in her, but not enough to where you are on the constant rollercoaster. She will probably go out with you and not treat you like crap. Might end at some point.



Insurance – Unattractive, but nice body. Will go out with you, not be crazy, unless you really f-up.



CD’s – The fat ugly girl at the bar at 2 a.m. - she will DEFINATELY go out with you, but you will derive zero benefit sexually, you can’t tell your friends about it, and once you do, you have a lifetime stalker (can’t stop buying CD’s)



Also, remind your client that even if he likes fat girls, “Fat girls are like jungle gyms, they are fun to play on, but you don’t want one in your house”.

Ask him what kind of women he likes.

Does he like attractive women?

Here is the risk table:

Penny stock - Smoking hot, famous actress/model/dream girl — You can ask her out, but you’ll likely get shot down

Growth stock - Good looking woman. You will have to ride the ups and downs of the crazy train if she says yes - may end in a breakup, may not

Dividend paying stock - Good looking woman. Down to earth. Will probably go out with you. You will become a better person because of it. May end in breakup, may not.

Bond – Attractive, steady woman. There is a little crazy in her, but not enough to where you are on the constant rollercoaster. She will probably go out with you and not treat you like crap. Might end at some point.

Insurance – Unattractive, but nice body. Will go out with you, not be crazy, unless you really f-up.

CD’s – The fat ugly girl at the bar at 2 a.m. - she will DEFINATELY go out with you, but you will derive zero benefit sexually, you can’t tell your friends about it, and once you do, you have a lifetime stalker (can’t stop buying CD’s)

Also, remind your client that even if he likes fat girls, “Fat girls are like jungle gyms, they are fun to play on, but you don’t want one in your house”.

BTW - This works for men too. So I don’t get the “you are a sexist pig” PM’s that I got last time.

That was worth the price of admission for today. 

Post of the Year!   Funny, funny!

From your post you have only 2 real options that will satisfy this clients main concern - safety of principal - cd’s or money market accounts. Neither will make you any money but will save your sanity with this client.

Ask him what kind of women he likes.

Does he like attractive women?

Here is the risk table:

Penny stock - Smoking hot, famous actress/model/dream girl — You can ask her out, but you’ll likely get shot down

Growth stock - Good looking woman. You will have to ride the ups and downs of the crazy train if she says yes - may end in a breakup, may not

Dividend paying stock - Good looking woman. Down to earth. Will probably go out with you. You will become a better person because of it. May end in breakup, may not.

Bond – Attractive, steady woman. There is a little crazy in her, but not enough to where you are on the constant rollercoaster. She will probably go out with you and not treat you like crap. Might end at some point.

Insurance – Unattractive, but nice body. Will go out with you, not be crazy, unless you really f-up.

CD’s – The fat ugly girl at the bar at 2 a.m. - she will DEFINATELY go out with you, but you will derive zero benefit sexually, you can’t tell your friends about it, and once you do, you have a lifetime stalker (can’t stop buying CD’s)

Also, remind your client that even if he likes fat girls, “Fat girls are like jungle gyms, they are fun to play on, but you don’t want one in your house”.

I keep hearing Jones guys cast doubt on FDIC.  Is that working for you?  I would think you run the risk of looking foolish doing this.  People have lost money with insurance companies, stocks, bonds, municipalities, etc.  No one, within the limits, has ever lost money in an FDIC insured product.  I am frustrated too by these CD people but “bashing” FDIC seems silly.

I keep hearing Jones guys cast doubt on FDIC.  Is that working for you?  I would think you run the risk of looking foolish doing this.  People have lost money with insurance companies, stocks, bonds, municipalities, etc.  No one, within the limits, has ever lost money in an FDIC insured product.  I am frustrated too by these CD people but “bashing” FDIC seems silly.

I keep hearing Jones guys cast doubt on FDIC. Is that working for you? I would think you run the risk of looking foolish doing this. People have lost money with insurance companies, stocks, bonds, municipalities, etc. No one, within the limits, has ever lost money in an FDIC insured product. I am frustrated too by these CD people but “bashing” FDIC seems silly.

You are not going to meet all 3 criteria.  But, I would take a look at the ishares website and use the Fixed Income Portfolio Builder tool - let him choose the quality and duration he is comfortable with and it will show you what to use. (CSJ, SHY, IEF, MBB, LQD, AGG, etc.)

Why not use some simple math and find out how much he needs to put into the highest paying 3yr cd you can find to enable him to walk away with his original principal and then invest the rest in anything else put probably for this customer low duration bond funds (pbsmx) and explain that no matter what, he will not walk away with less than his principal and what ever happens to the rest is icing on the cake. I am in a bank platform and this seems to open peoples minds a little.  I know it is not full proof but it does work.

Man, I just had a penny stock walk by my office window…if I only had the capital to waste…

Man, I just had a penny stock walk by my office window…if I only had the capital to waste…