Originally Posted By Mr X No, not music. Certificates of Deposit. I read somewhere that investing in CD's from banks other than in your home state might be wise. My question is, if you come from a state tax free state like Florida or New Hampshire, and open a CD in another state, could you become liable to pay taxes in the state where that bank is located? Or are you only responsible for your home state taxes (or lack thereof)? Also, what is "CD laddering"? Anyone heard of this?
Originally Posted By mrichmondj Interest from CDs would be subject to federal taxes regardless of what state it is purchased in. I only think interest would be tax free if you were actually a resident of the state that doesn't levy taxes (i.e. Florida, Tennessee, etc.), and that would only be for the state tax portion. If you aren't a resident of one of these states, you would likely still have to pay taxes in the state where you reside regardless of where the bank is located. I am no expert in this, so I could definitely be wrong. There are a number of bond vehicles that are not subject to federal or state taxes -- most of these are of the municipal bond variety. With interest rates on the rise, a municipal bond pays very similar rates to CDs when you account for taxes. Also, if the economy goes sour and bond yields decline, the value of your bond increases. Some analysts are saying that we might be nearing the height of interest rate hikes within the next year, and a soft economy could lead to lower interest rates and higher bond prices. CDs are typically used by individual who are looking to get steady income from their monetary assets. If you are looking for asset appreciation or wealth accumulation, there are probably other vehicles out there that do the trick better than a CD.
Originally Posted By SuperDry Laddering is staggering the maturity dates of CDs (or bonds) so that they don't all mature at once. So, if you had $5000 to invest, you might take out a $1000 CD that matures in each year from 1 to 5 years from now, then renew each one for a 5-year term as they come due. This way, if interest rates drop significantly, you're not caught in a situation where all your CDs mature at the same time when rates are low. Over time, you'll be sure to end up getting close to the average CD rate over that period with little risk of underperforming due to unlucky timing.
Originally Posted By Mr X >>>If you aren't a resident of one of these states, you would likely still have to pay taxes in the state where you reside regardless of where the bank is located.<<< I'm a Florida resident, that's the reason I asked. I know I'm still subject to Federal tax, I just wanted to make sure I wouldn't owe any state tax as well. That laddering thing sounds kinda interesting. However, I AM looking more for wealth accumulation, so mrich, got any ideas? I don't mind a bit of risk.
Originally Posted By mrichmondj I don't know if I'm the best source of investment advice. I've made a few mistakes, but always try to apply the lessons learned. I occasionally blow a lot of hot air about my high flying ExxonMobil stock, but that was a fluke really. I've lost more money in picking individual stocks than I have made over the years. I haven't lost a lot, but enough that I don't consider myself a very good stock picker. That being said, I have managed to sock away a nice chunk of change for the long haul -- mostly because I just plain save a lot of money instead of spending it. I've made some good decisions in mutual funds, too, and they have given me some decent returns in my retirement accounts. Here is what has worked best for me: - Stock market index funds. I use both the S&P Index and Total Market Indexes. The total market has done very well compared to the S&P in the past several years. Fees are very low on index fund. You can also buy the exchange traded version (ETF), but I don't think that works as well if you want to make monthly contributions since you have to pay a commission each time you trade and ETF. - I've also dabbled in bond funds recently. The returns aren't all that great, but if interest rates decline the price of bonds will rise again. Still, it's fairly safe if not all that exciting. I've been relatively pleased with mortgage backed security bond funds (generally known as GNMA). Again, nothing exciting here, but I've been happy with the returns -- particularly in a tax-deferred retirement account. - I started putting some money away in a foreign stock fund several years ago. It limped along for a couple of years and didn't make me feel very good. However, in the past couple of years foreign stocks have really taken off, and this fund has realy helped my returns. A good lesson in diversification, I think. Overall, I think the biggest lesson I've learned over the years is to diversify. You really have to spread your money around and experiment a little bit in different areas. If you are buying mutual funds, always find the one with the lowest fee. Chasing performance figures rarely ever works. I don't have a very positive outlook on the economy in the next several years. I think that retiring Baby Boomers who shift to fixed income retirement plans and social security are going to stop spending money in a big way, and that is not a good thing for the economy in general. I'm still adding to my stock/mutual funds, but I'm starting to add more to bond funds in case there is a down turn coming up. If we go through the same thing that Japan experienced during the past 10 years, and see a bit of deflation, the best place to have money is in cash and not stocks.
