Wanna be able to live your life predictably. So fixed products, fixed investments, they're good, but it's not the holy grail. It can be a good part of an entire plan. Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to that oversimplified advice you've heard hundreds of times.

This is all about the nitty gritty. Now on this show, we're gonna talk a lot about different options here. Just make sure that this is you know, this is not financial advice. This is just educational, informational. Do your research.

Text your questions to (913) 363-1234, and we'll feature them on the show. David, what's our question today?

Hey, Mike. What are good places to shop for fixed rate products?

So let's define fixed rate products, anything that's gonna grow at a fixed declared rate.

K? So high yield savings isn't really a fixed rate product because if the Fed changes its rates, high yield savings is gonna change its rates. It's very fluid. Right. But so you've really got a what?

Two or three, four options maybe. First one, you've got CDs, very common. In the CD realm, my favorite place to shop is either your broker dealer. So you've got Schwab, Vanguard, Fidelity. They're gonna have a nice inventory of CDs that you can buy.

Oh, I didn't realize that.

Yeah. And then and then if you wanna go directly to different banks, you can also go to, like, bankrate.com. That's not an endorsement. Bankrate doesn't pay us. They don't pay us anything for that.

Okay? But it's a nice free public source. You can go to bankrate.com and look for, like, a CD, six months, twelve months, compare the different rates, and so on. Don't just assume your bank has a good rate. The bank that I bank at has terrible CD rates.

I mean, absolutely miserable.

They shall remain nameless. We do not want to disparage them because It's otherwise

treated you on my back. Yeah. I bank with them for a reason. Yeah. They're large, and I don't think they're ever gonna go insolvent.

Yeah. So I'm never concerned about it.

So But you're not looking to make a lot of money in your checking or savings with them?

No. No. That's what a high yield savings is for. If you want a more fixed rate, you do a CD. So that's the banking world.

Now let's shift over to the investment world itself. Alright. Bonds are basically a fixed rate mechanism. It's a debt instrument that grows at a fixed rate. And you've got zero coupon bonds.

You've got the treasuries. You've got corporate bonds. You've got all sorts of different types of bonds, and they're only good as the creditor or whoever backs it. I think people generally get that. K?

So I don't know if Toys R Us is officially gone or not, but if Toys R Us were to offer some bonds today, I don't know if I'd take it. Kind of a long shot there. You might not get your money back. Yeah. But, like, you know, if well, Kansas has a few star bonds that they're offering to help pay for the new Chiefs Stadium.

Mhmm. I don't know if I'd take those up either. And and the reason is the bond that it's it's not backed by taxpayers. It's backed by the profits that are expected to come, but the numbers don't make sense to me. So you have to be very careful of the bond and who's backing it and their ability to pay back that debt obligation.

K? So it's fine. It's just understanding there's different levels. Municipal bonds could be tax free, which is nice. You know, the tax free interest on that.

But you just you need to do the do the due diligence. So your your your broker dealer's gonna have all the access for there. You wanna make sure you do a comparison on the net of tax. So if if let's say municipal bonds paying four percent, corporate bonds paying 5%, that difference, is it worth the tax free difference or not?

Okay. Yeah. So if if there's a a corporate bond that pays a full percentage point more, but it will get taxed differently, and so maybe that percentage advantage evaporates. Is that what we're saying?

Well, and I I threw out easy numbers here, but let let's a lot of people say, well, I don't wanna pay taxes. They put them in a municipal bond. Well, maybe that municipality isn't that solvent. Maybe they're actually struggling. It would be priced in, so it should be the the amount you're getting should be appropriate for the risk that you're taking.

Should is the keyword. It's not always the case. But then in addition to that, you have to think, okay. Well, what's your tax bracket? How much are you paying in taxes?

And is it worth to have a certain amount of income that's tax free? That's line two a in your ten forty. Is that tax free income good? Or should and two b just you have taxable interest, not the end of the world. Is it disrupting your ordinary income?

Are you still in the 12% tax bracket, the 22% tax bracket? And is the growth net of of taxes worth the difference? You just have you have to make that personal assessment. Everyone's taxes can be different. But then you've got the bond side of things, the corporate bonds.

Just understand high yield bonds being junk bonds. So you might not get all your money back.

I was just gonna ask, like, what are what about junk bonds? So so they're High yield means so They're junk. Here we go. They're more risky. That's why they're junky.

You can get, 4% of high yield savings. Great? Yeah. K. If I gave you 3% for a bond, would you take it?

Well, I guess if I'm if I'm at a fixed, like, 3% at a high yield savings

versus years left, 3%. Would you take it or put it in a money market or high yield savings account for the same thing, complete liquidity?

Maybe I'll choose the the complete liquidity and sort of a more sure thing than a junk bond. What about 5%? Oh, okay. Now we're talking. Maybe we need to go a little higher, and it'd be worth it for me.

Yeah. How about 7%?

Yes. K. I'm willing to take that.

How about 15%? Keep going. 20%?

Yeah. How about 40%? Does that ever happen? Uh-huh. Really?

Uh-huh. Those those must be really risky ones then.

Uh-huh.

This what what's the highest you've ever seen?

I think it was I would think it was the 40%. Oh. Something like that. Wow. But they default.

Like, it's not sustainable.

Oh, yeah. What was I'm

gonna look this up while we chat. But what was the highest Argentinian bond? Oh. Now let's see if we can find it. Here we go.

What was the highest Argentinian bond offered? I I I I'm a millennial, but I look like a boomer because I'm typing it in instead of just talking to it

Oh, yeah.

Which should be really funny. Okay. So it wasn't 40%. It was 29.5% coupon Oh. Was the highest Argentinian bond.

Okay. Still, that's that's high, or it seems high.

Yeah.

Because they're normally single digits. Right?

Yeah. Yeah. So when people say, well, I'm getting 10% of my bonds, I say, great. Do you know the risk you're taking? It's a bond.

They'll pay it back. Who's they? What do their financials look like? Why is it that they have to pay a higher coupon rate or higher interest rate to get people to put money with them? There's something you might not know.

And so, I mean, you can blend it, You know, investment grade bonds, a few high yield bond funds can do stuff like that as well for you so you don't need to do the research. But it's just be aware if you're buying bonds, not bond funds, and you're getting a fixed rate, you wanna make sure you understand the legitimacy of that. So we've talked about banks, CDs. We've talked about kind of the investment world or security world, which bond is a security. But instead of it being equity, it is a debt instrument that that someone's gonna say, hey.

We need money. We'll pay you back at a coupon rate for a certain period of time, and that can do well as well. And if you just stop there, that's not that bad of a deal because you could ladder out CDs and treasuries and or bonds and kind of line up each year and and the inconvenience and so on. So not not a bad gig. Yeah.

Okay? Yeah. Then you have the insurance, which is the third category of the of fixed instruments that could be offered. Think of a MIGA multi year guaranteed annuity or a fixed annuity that grows at a fixed rate. I guess yeah.

I mean, SPIA would be instant income, so we won't go there.

Just

MYGA multi year guaranteed annuity or a fixed annuity because it's basically the same thing. Alright. Apples what what is no. Tomato tomahto, same thing. Oh.

There we go. Right. So which one's better? Well, first off, what's paying a higher rate at an equal or lower amount of risk? So they all need money.

The people that are issuing bonds, they need money. They're gonna be competitive with that. The insurance company wants cash on hand, and they're willing to pay a fixed rate for for that cash to go on hand. The bank needs money so it can then loan it out for the mortgages and other places. You know, the arbitrage, that's how they work.

So they all want money. They're all competing for your money, but they all have different regulatory compliance. Mean, the bank is gonna be run differently than maybe the insurance company and their requirements to have cash on hand and what they can do with the funds. So they're they are different. They're they're gonna average or look at different timelines, so you might be more favorable with a six month to one year for, like, a CD.

Treasury might be better for, like, a one or two year, maybe maybe a thirty year. Depends on what the rates are. And the rates are not determined, by the way, for what it's worth, by the Fed. It's the open market and what they're willing to pay for a treasury. Whether it's a ten year, twenty year, thirty year, doesn't matter.

It's what the open market is willing to trade for that instrument. Okay. K? So Jerome Powell isn't setting the rates for the treasury. Scott Besant is saying, hey.

We need some debt. We need some money. We're gonna issue some treasuries as the treasury secretary. Mhmm. And then he's saying, hey.

Would you take 4%? The market's like, nah. About four and a half percent. Okay. We're good with that.

Or 6%. It's whatever the market's willing to pay for it.

Okay.

People don't separate those two. Alright. And then the insurance company might say, well, we we need some money too. We are technically less risky or we're less risky than a lot of these bonds, but we're more risky technically than the US government, which is backed by the taxpayers. Alright.

So maybe and I'm making up numbers. Okay. But maybe a treasury is, like, 4%, and maybe the MYGA is, like, 5% because they have to compensate for it.

Oh, I see.

Now what's the probability that the insurance company goes under? I don't know. What insurance company are we talking about? In 2008, there wasn't a single insurance company that went under, though. Right?

They they have a lot of regulatory they have rules on how much they have to have on hand, and they're they're scrutinized for that. So it's not necessarily a bad situation. And then a bank. Which bank is it? I mean, if that bank's offering a high CD, you have to ask yourself, okay.

Well, how solvent is this bank? Are they compensating for something? So you wanna kinda blend that together. But those are the three fixed markets that I would at least look at when shopping different products.

The insurance, the bank, and what was the third one? Just like Insurance, the

bank, or securities, think think of like the bond market.

Okay.

Yes. You have to go through a broker dealer to get a lot of the bonds.

Okay. And just really quickly too, you buy like an individual bond, but a bond fund has lots of different bonds in it?

Bonds are not supposed to lose money unless they go bankrupt.

Okay.

You know, the issuer goes under.

Okay.

A bond fund is actively trading bonds. Alright. Bond funds can lose money.

Uh-huh. And who put the bond fund together and is, like, trading it and then managing it?

Yeah. Great question. There's a lot out there. So you've got, you know, State Street, Vanguard, Fidelity, BlackRock. I mean, everyone has bond funds.

Yeah. And then you have an investment manager who is then overseeing the ins and outs, the flows of of that fund, whether it's a mutual

fund, whether it's ETF, whatever. And that manager might say, hey, let's put a little bit in these junk bonds, and let's put a little bit Argentina, and let's put some in this. Or do they have, like, a prospectus that says that for this bond fund, we're these are the type

of places we wanna go normally with it. Usually, the prospectus will determine or explain what they are. So some might be short term government bonds. Some might be a blend of government bonds to junk bonds. Some might be only, like, bonds from five to ten years or whatever it is.

But different funds will have different objectives, and then they often try to fulfill those objectives.

And people might be surprised that those can lose money. Like, how often do they lose money? Do we know?

I mean Just rarely? Does the market tank? We know it's every seven or eight years, but it's not exactly every seven or eight years. 2022, 2023, the markets the the bond markets really suffered because interest rates were going up, and the new issuance of bonds themselves were going up. So if if new bond prices are high or increasing, your current bonds are less valuable.

Oh, right.

They go down. Okay. So that's a that's that's the tricky part. If inflation gets out of hand, bonds will hurt. And if you think about it, see that it's kind of an interesting point in that bonds are fixed.

So if inflation stays the same or drops, it's a great position to be in. If if you have a bond or whatever at 5% and then inflation goes from, what is it, 3% or whatever it is today to, like, 10%, your bond did not keep up with inflation. You actually went backwards.

Oh, right.

And inflation is typically enjoyed in the stock market. Right? So the inflation is when the market's on it's too hot. It's growing too fast. Prices are out of control.

Profits are out of control. Fixed accounts aren't good in that situation. So you have to kind of understand kind of the the gives and takes of anything fixed. Be careful of rigidity. Be careful of especially in today's environment, doing a bond or CD or MIGA Ladder for twenty years.

Oh, Right. Well, it can happen in twenty years.

I've seen it. I've I've seen people do that, and they say, well, I don't wanna worry about money. Okay. So you don't wanna worry about market risk. Got it.

How about inflation risk?

They maybe not have thought of that.

They don't really realize it until it's it's calculated in front of them, and then it's like they're like, oh, dear. So the the point is fixed accounts are great when used appropriately. CDs, treasuries, bonds, MYGAs, whatever you want, you can blend them together. It it's all what's right for you. That's why we go back to, well, what's your lifestyle legacy goals?

Does the plan make sense? Does one plus one equal two? Can you afford to retire? And then we can talk about strategies, and this might be a strategy for the next income for the next five to ten years. It's fine.

It's just can you afford it? It doesn't make sense. And then you pick out the products. Don't shop for CDs or MYGAs or anything anything like that until you've got your plan in place. And be careful of reinvestment risks too.

This is a big one. So if you buy a CD, it's a one year CD, you plan to keep it and roll it over every every every single year

Oh, yeah.

You might get, what, let's say, four and a half percent this year. Next year could be 1%. So if you're saying, well, shoot. I plan to live off of the dividends or the growth. Dividend isn't really appropriate for the word, but it's what people call it Uh-huh.

Of or the interest of the CDs. Well, this year, might get four and a half percent. Great. Great job. Next year, you might get 1%.

You just lost a lot of your money. Right. What are you gonna do? Sell the principal? That wasn't the original strategy.

Live off of less? Yeah.

What do we call that? I'll tighten my belt. Yeah. Don't wanna tighten your belt.

You wanna be able to live your life predictably. Yeah. So fixed products, fixed investments, they're good, but it's not the holy grail. It can be a good part of an entire plan. Hey.

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