This document discusses how to set up and manage CD ladders. It explains that CD ladders allow investors to stagger CD maturity dates so that some portion of funds are available regularly, while still earning interest. Maintaining a CD ladder involves reinvesting maturing CD funds into new, longer-term CDs. Examples show how CD ladders can provide regular income or buffer against rising interest rates. While CDs guarantee principal and interest rates, their yields may be lower than bonds and funds are limited by FDIC insurance. Overall, CD ladders can be part of a conservative portfolio for those seeking guaranteed returns.

1. CD Ladders: How and Why
Setting them up and managing them
• Laura Ricci
• Milwaukee Bogleheads
• September 2017
Student Level Expertise Age: 40 to retired

2. Why use CDs?

3. CDs are ready cash
• Can be used as part of your bond allocation.
• Can be used as part of your withdrawal strategy.
• Can be used for “bucket strategy”
• CDs do not change value. Bonds may rise or fall in value
with the market. But when you absolutely want to be
sure of having a specific amount of money available,
CDs may be a good choice.

5. Wow!
• So, are bond funds the wrong thing to have in my
portfolio?

7. Why use a Ladder?
• Buying CDs in a ladder, allows you to set up a series of
maturations over time:
o You can set them up to mature every quarter, year, etc. to match your cash flow
needs.
o When interest rates are fluctuating, you can be reinvesting periodically, instead of
investing everything to mature at the same time, splitting the risk over a longer
time period.

8. Can I buy bonds instead?
• The yield might not be as good, but it is worth checking
before deciding to use CDs.
• It seems to be easier to control the date of maturity with
CDs, but this is only my limited experience, so it might
not be true.

10. You decide how long you
need the ladder
• CD Ladders
• 3 mo, 6 mo, 9 mo, 1 yr
• 6 mo, 12 mo, 18 mo, 2 yr
• 9 mo, 18 mo, 2yr3mo, 3 yr
• 12 mo, 24 mo, 3yr, 4 yr

11. Maintaining a CD ladder
• As CDs mature, if you are not spending them, reinvest to
a new rung on your ladder, at the same distance from
your last maturity.

12. Sample Problem 1
• Sue needs income to spend, and is using a bucket
approach. She will withdraw funds from savings every 6
months for living expenses.
• How will she invest in a CD ladder?

13. Sample Problem 1
• Initial CD Ladder:
• 6 mo, 12 mo, 18 mo, 2 yr, 2 ½ yr, 3 yr
o Each CD equals 6 months of living expenses
o The number of CDs can be as long or as short as you desire.
• Depending on market conditions, Sue will refill the CD
ladder from her portfolio when:
o The market is steady
o She is rebalancing and has harvested some gains

14. Sample Problem 2
• David wants to buffer his bonds from decreasing value,
expecting interest rates may be about to rise.
• His concern is that over the next 4 years, interest rates
may rise, causing his bonds to fall. But he realizes he
cannot predict when these changes might occur.
• (David is not a pure Boglehead, and knows this is a bit of
market timing. But he is doing this to slant his portfolio to
a bit more conservative cause.)

15. Sample Problem 2
• 1yr, 2 yr, 3 yr, 4 yr
• At the end of the first year, David will buy a new CD of 4
year length. Every year David will repeat the investment
with the newly matured CD payout, buying a 4 year CD.
• This approach requires time and attention from the
investor, while a bond fund works without help. At
anytime, David can reinvest in a bond fund.

16. Cautions
• FDIC insurance is limited to $250,000 per account.
o Avoid holding more than $250,000 at a single institution in a single name.
• CDs stop earning interest once they mature.
o To keep earning interest, the funds must be reinvested in another CD.
o Why not use a Savings account? CDs pay higher interest rates.
o Why not buy individual bonds? FDIC insurance is not available and risk may be
higher for the yield you can get from a CD.
• Interest rate is set at the time of investment, and does
not change.
o The good news is you lock in the interest rate when you buy a CD
o The bad news is you lock in the interest rate when you buy a CD

17. Milwaukee Bogleheads®
• A DIY investment group, followers of John Bogle's Index
investing strategies, the Milwaukee local chapter of
Bogleheads.
• This presentation was made September, 2017 by Laura
Ricci of our chapter.
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18. Disclaimer
• All examples are for illustration purposes only and are
not investment recommendations.
• The views expressed in the presentation, are those of
the presenter, commenters, guests and participants and
may not reflect the views of the Bogleheads
organization.
• Use your discretion in using examples presented here
for your own investment purposes.
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