Safety of short-term bond and CD ladders


According to recent disclosures, Warren Buffett’s Berkshire Hathaway has recently revealed its substantial cash reserves and significant investments in U.S Treasuries.  

This large position isn’t surprising, given the ongoing market volatility and extended valuations in equity markets. It has become more appealing to consider the safety of parking money in certificates of deposits (CDs) and U.S. Treasuries. As of Oct. 12, the yields on these investments have become enticing, with a six-month Treasury yielding 5.35%. A one-year Treasury at 5.41% and a two-year Treasury offering 5.04%.  With some research, you can find FDIC-backed CDs providing similar yields.

One strategic way to invest in these conservative options is by utilizing a method called “laddering.”  Laddering allows you to balance liquidity needs with the opportunity to lock in yields for an extended period. For instance, if you have a $100,000 savings account and your current yields are not competitive, consider this example: utilizing CDs for your shorter-term investments.

Invest $25,000 in a three-month CD
Allocate $25,000 to a six-month CD
Place $25,000 into a nine-month CD
Put $25,000 into a 12-month CD 

In this example, when the three-month CD matures, you can simply reinvest the funds into a 12-month CD as the other holdings have moved three months closer to maturity. In some instances, you may want to extend the maturities even further, depending on your financial goals. Warren Buffett is known for maintaining a conservative fund, waiting for an opportune time, such as a market correction, to deploy cash when stocks “are on sale.” The good news for you as an investor is that you are currently being rewarded for holding conservative assets. Maintaining a portion of your portfolio in cash and short-term investments carries several advantages. It helps offset the volatility of your stock holdings and provides peace of mind, knowing that you have funds set aside to cover expenses as they arise. 

Eric Tashlein is a Certified Financial Planner Professional™ and financial advisor with Cambridge Investment Research Advisors, Inc. He can be reached at 800-878-7152. Offices: OES Wealth Partners, 71 Bradley Road Suite 4-A, Madison, CT 06443 & 30 Old King Hwy S, Darien, CT 06820. The information provided is for educational purposes only and doesn’t intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Advisory Services offered through Investment Advisor Representatives of Cambridge Investment Research Advisors, Inc. Cambridge Investment Research Advisors, Inc, and OES Wealth Partners are not affiliated.


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