bank rates

Poor CD Rates Pushed Me To (Reluctantly) Open Two Online Brokerage Accounts

Online brokerage allows you to invest in brokered CDs.In December, I did something Ben Bernanke would like.

I opened online brokerage accounts at Fidelity and Vanguard.

I didn’t do this so I could invest in stocks, commodities and esoteric financial instruments — as the Fed chairman apparently wants me to do.

I did it so I could modestly expand my fixed-income portfolio.

That portfolio has, for three years, consisted almost entirely of government-insured CDs, established directly with banks and credit unions.

Now, I’ve decided to move a tad further along the risk spectrum by purchasing some federal agency/GSE obligations.

I’m also going to dabble in brokered certificates of deposits.

I’ve taken this step reluctantly, having always prided myself on investing my money directly, without help (or, more accurately, interference).

When I was into equities, I limited myself to no-load mutual funds (meaning there are no commission fees).

As I grew older, I shifted funds to safer havens — first, to money market funds, then to Treasuries and, finally, to insured CDs.

I could do all this without a brokerage account.

But agency and brokered CD investments require me to hire a middleman.

I chose Fidelity and Vanguard because they come about as close to direct investing as you can get in a brokerage setting.

First and foremost, you don’t have to deal with a financial adviser.

And their online trading platforms offer “new issue” fixed-income instruments (meaning it’s being sold to the public for the first time, such as an initial public offering of a stock).

I prefer new issue rather than secondary market investing for various reasons, not the least of which is I don’t incur commissions or markups. (It’s not cost-free, of course, because issuers compensate selling dealers, and this is reflected in reduced yields.)

Plus, new issues are generally offered at par (meaning the face value without a markup).

With interest rates falling steadily, debt instruments are increasingly traded at premiums, which is unhelpful if the issuer goes under (market premiums can’t be recovered in bankruptcy or through FDIC insurance).

Anyway, I want some exposure to higher-yielding obligations with “implicit” government guarantees (like the Federal Farm Credit Banks and Federal Home Loan Banks) and to CDs of financially sound banks I can only buy through a broker (like GE Capital Retail Bank and Goldman Sachs Bank).

I know there are cons as well as pros to what I’m doing. I’m aware of most, but undoubtedly will learn others as I go along.

But I’ll start out slowly, wading into online brokerage accounts, rather than plunging in headfirst.

Hopefully, the policymakers at the Fed will be satisfied with that.

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  1. Jose said:
    on March 4th at 12:31 pm

    I generally enjoy your content, but your writing style drives me nuts. You change thoughts or provide clarifications using parenthesized statements.
    Please avoid this, it detracts from your subject.

    For example….

    The woman (who hadn’t slept in days) fell asleep at the wheel of her new (recently purchased) car, which started veering off the (recently resurfaced highway) and into a ditch. Luckily, the ditch was soft and with no trees (but there were many bushes and other grasses) stopped her car (plowing into soft dirt) without injury to the driver (or others, located in houses all along the highway).

    Now, do you get (the long awaited) point?

    Jose.