Can you beat 5.65% over the next five years?
It’s an innocent question, but perhaps a timely one. The FOMC meets next Tuesday to decide what comes next for interest rates. Some are predicting that that what comes next is nothing, which is to say, no rate hike. If so, the 5.65% currently offered by Raymond James Bank looks enticing.
We have mixed feelings when it comes to locking up money in fixed-income instruments these days, as our various posts over the past weeks and months suggest. But we’re also an adherent to the school of thought that the future’s uncertain, even if the end isn’t near. As such, we’re predisposed to take a good deal when we see one.
Granted, there’s been a devaluation in good deals of late, and so we’re reduced to looking for the next best thing. By that diminished standard, 5.65% on a five-year certificate of deposit looks pretty good. As we write, 5.65% from Raymond James Bank is within a few basis points of the highest-yielding CDs in the nation, according to

Context, of course, is everything when shopping for fixed-rate securities. On that score, 5.65% still looks pretty good, considering that that a 5-year Treasury yields 4.89% this morning, and a 10-year’s 4.97% isn’t much higher. Taking some marginal extra risk to bump up the expected return to 5.65% looks like an eminently logical tradeoff at the moment.
Let’s be clear: we’re not saying that it pays to put an entire portfolio in one 5-year CD. On the other hand, moving some money out of a money market fund is starting to look like a mildly intelligent move.
Regular readers of CS know that we’ve been sweet on holding an above-average allocation to cash, primarily in a money market fund, for strategically designed portfolios. The reason has been that with short rates moving higher, owning a money market mutual fund has been an efficient means of tapping into that higher yielding trend. The Vanguard Prime Money Market Fund, for instance, now yields 5.07%–more than double its annual average total return of 2.11% for the past five years.
Keeping an above-average allocation in a low-cost money market fund still strikes us as sensible. At the same time, it’s time to start redeploying some of the cash to lock in the higher yields of the moment. The Fed may keep raising rates, but the outlook is becoming fuzzier by the day. If we really knew what was coming, there’d be no need for asset allocation or rebalancing. Unfortunately, we live in this world; thus, our dilemma and response.
In any case, we’ll conclude by reminding that while 5.65% over the next five years–each and every year–won’t make you rich, but it will deliver a tidy return that, if nothing, else, looks good by the standard of the rear view mirror, based on the trailing five-year annualized total returns for the major asset classes, as listed below. Ongoing diversification across all the major asset classes is standard operating philosophy here, but that assumes a bit of tweaking is in order from time to time.