Our very own Marcus Holzberg, CFP® was recently featured in an article from The New York Times about whether now is a good time to lock in higher interest rates on cash equivalent securities.
Whether now is the right time or not to start extending maturities on the fixed-income portion of your investment portfolios is a hotly debated topic within the financial profession. The big question on everyone's mind is whether the Federal Reserve (Fed) is done raising rates, and if so, whether they will start lowering rates or keep rates higher for longer.
In its final meeting of 2023, the Fed signaled that it foresees cutting rates three times in 2024. However, being the data-driven agency that it is, its shifts in monetary policy are unpredictable. Given uncertain macroeconomic and geopolitical issues at large, events could lead to the Fed delaying interest rate adjustments or making swift changes.
Ultimately, the answer to this question of whether to extend maturities depends on the individual investor and their risk profile. Regardless, here are a couple of rules of thumb to keep in mind for Certificates of Deposit (CDs):
During times when it seems like the Fed may stop raising interest rates or may even start lowering them, the issuer of the bond (e.g., CDs being the bond of a bank and the issuer being the bank itself) can "call" the bonds back – meaning repay the debt early. This allows the issuer to pay off their higher-interest bonds and issue new bonds at lower rates. Keep an eye out for CDs with this call provision, and either do not buy callable CDs or purchase ones with extended call periods.
Make sure the CD you purchase is under the FDIC-insured limit of $250,000 "per depositor, per insured bank, for each account ownership category." We discuss this in greater depth in our post about CD ladders.
If you have questions about whether extending bond maturities is right for you, talk with a financial advisor. You can schedule a complimentary, no-obligation call with us here!
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.