Archives for March 2023

Money vs. Happiness, Round 3: Higher Income Correlates to Higher Happiness (Unless You’re Just an Unhappy Person)

Posted on March 30, 2023 // 3 Comments

Mo’ money, mo’ problems? Or more money, more happiness? Over the years, the media has picked up on academic studies trying to establish the relationship between the two, and it seems we have a new result from two initially conflicting researchers. First, a bit of backstory.

Round 1: The $75k plateau? In 2010, Kahneman and Deaton found that happiness rose as annual income increased initially at lower incomes, but eventually it leveled off and happiness plateaued at between $60,000 and $90,000 annual income ($75,000 midpoint). From my post Happiness Is Earning $60,000 A Year?

Below 60,000 dollars a year, people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean I’ve rarely seen lines so flat.

Here is a reproduction of the chart in that paper.

Round 2: No plateau. More money, more happiness. In 2021, Killingsworth found that happiness rose steadily with income well beyond $75,000 with no plateau effect. I wrote the post Happiness Keeps Increasing Past $75,000 a Year. Here is a reproduction of the chart in that paper.

Round 3: Adversarial collaboration leads to a bit more nuance. Kahneman and Killingsworth decided to collect more data (especially at higher incomes), and analyze it together. Here’s the chart of their findings from their paper Income and emotional well-being: A conflict resolved:

Looking at the chart, you can see the two major conclusions:

  • For the happiest 80% of people (most people), happiness continues to rise with income, even with very high incomes.
  • For the unhappiest 20% of people, happiness rises up to about $100,000 in annual income and then plateaus.

“In the simplest terms, this suggests that for most people larger incomes are associated with greater happiness,” says Killingsworth, a senior fellow at Penn’s Wharton School and lead paper author. “The exception is people who are financially well-off but unhappy. For instance, if you’re rich and miserable, more money won’t help. For everyone else, more money was associated with higher happiness to somewhat varying degrees.”

The paper also explores why Kahneman and Deaton may have previously overstated the flattening pattern and why Killingsworth failed to find it. I doubt this will be the last round of this debate.

I would simply point out (again) that they are saying happiness tends to correlate with log(income), not income. To illustrate what this means, in order to match the amount of linear happiness increase from $20,000/yr to $60,000/yr income, you would have to go from $60,000 to $180,000 year, or then $180,000 to $540,000 a year, and so on. That would look more like the sketch below.

My take. Getting a $25k annual raise will make a person currently earning $50k a much larger happiness boost than a person currently earning $150k. But, that $150k earner will still become slightly more happy (unless they simply tend to be miserable no matter what). Sounds about right to me.

Additional sources: WaPo, Penn Today,

Filed Under: Behavioral Economics, Happiness //

Refinery29 Money Diaries: Interview Questions Answered

Posted on March 28, 2023 // 3 Comments

I’ve always been fascinated by stories about money. There are just so many ways that people earn and spend their money, yet we rarely share because we are taught to be secretive about it. I recently discovered the Refinery29 Money Diaries such as A Week In Portland, OR, On A $105,000 Salary. There is even a book. The participants are all asked the same set of questions, and I have answered them myself below as an interesting exercise in self-reflection.

Was there an expectation for you to attend higher education? Did you participate in any form of higher education? If yes, how did you pay for it?

Yes, there was definitely an expectation for me to attend higher education. My parents were willing to help pay for some of my tuition, but they had limited resources and there was definitely a “value” hurdle. If they personally didn’t think the school was worth it (based on their personal opinion of the school’s reputation), they weren’t going to help pay for it. I applied to about four schools.

I am very thankful that my parents did help me with a significant portion of my college tuition and boarding costs. I finished my undergraduate degree with about $30,000 in student loan debt (this was over 20 years ago now). I went straight onto grad school and at that point was able to cover my own tuition and living costs using a fellowship stipend and income as a graduate student instructor and/or researcher. I started paying down the $30,000 in student loans during my graduate school years (helped by various side hustle income) and finished paying it off completely within 4 years of finishing my undergraduate degree. A major motivator was that I wanted to be debt-free before proposing marriage to my then-girlfriend.

Growing up, what kind of conversations did you have about money? Did your parent/guardian(s) educate you about finances?

I don’t remember many direct conversations about money, but I did a lot of learning through observations. I saw frugality, self-discipline, and not being wasteful. My parents did not buy things without carefully considering the cost-to-benefit ratio. We hardly ever ate out at restaurants. They did not focus on material things, and were very practical. They worked long hours, played it safe, followed the rules, and built a very solid life over time. Education was highly valued.

However, I wasn’t exposed to things like entrepreneurship, taking asymmetric risks, or investing in stocks and real estate. That journey was left to me, but I felt that I had a very stable base to get there. I knew how to live below my means, even if my “means” started out as less than $20,000 a year of annual income. I could create the raw material of having money left over to invest.

What was your first job and why did you get it?

My first job was probably either a math tutor or restaurant cashier at around age 16. Here is a list of every job I’ve ever had.

Did you worry about money growing up?

My observation is that kids notice money issues when they have a different experiences from their friends. Most people who “didn’t feel poor growing up” had that feeling because all of their friends were in the same situation, for example living together in a homogenous neighborhood or housing development. Similarly, post people who “didn’t feel RICH growing up” also had that feeling because all of their friends were in the same situation. I’m afraid that my kids are going to be in the latter group.

In my case, my parents put a premium on a good public school education but were probably below the average income level, so we usually ended up living in a cheaper rental in an affluent neighborhood. Therefore, I definitely noticed that I lived in an apartment or duplex when my friends lived in a single-family house. We drove the old import car when they pulled up in the brand-new SUV. The four of us shared a single bathroom, while others had their own bedroom and their own bathroom. I still had a happy childhood and was never hungry or scared, but I did notice these types of things.

Do you worry about money now?

I probably shouldn’t, but yes, I do. Rationally, I should just be thankful for my health and my family’s health. Those are gifts that can be taken away much more easily and suddenly than my relatively-conservative investments and job income.

At what age did you become financially responsible for yourself and do you have a financial safety net?

I started graduate school at age 21 and that was when my income was high enough to pay all of my own bills. My $30k in student loans were in deferral, and I knew that I’d have to take care of them at some point, but my monthly cashflow was net positive.

I’m sure I had a few hundred dollars in my checking account as an “emergency fund”, but even more importantly, I always knew my parents still had my back even if I no longer received money from them. If something truly catastrophic happened, I knew they would come in and help. I’m sure I took it for granted at the time, but now in retrospect it is so valuable because it allows you to feel comfortable taking some risks in your life. Many people struggle today because they had to drop out of college early and were stuck with the tuition debt but no degree. Many people who had the potential to become doctors decided to become nurses because that was a surer, safer path.

Do you or have you ever received passive or inherited income? If yes, please explain.

I have not received any income from a trust or inheritance. My wife did receive an inheritance very recently. We plan to use any inheritance to help “pay it forward” and cover our three kids’ educational expenses and/or help them buy a first home. Both sets of grandparents greatly value education. While we didn’t receive any financial assistance for a home downpayment ourselves, I am not necessarily against helping my kids in such a way. (I would still be impressed if they can pull it off on their own.)

Filed Under: College & Education, Family //

Bonds Are a Not a Hedge Against Stock Market Crashes (But Own Them Anyway)

Posted on March 27, 2023 // 1 Comment

Per Wikipedia, a financial “hedge” is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. Wouldn’t be nice if for every Investment A, there was another Investment B that would always move in the opposite direction? Unfortunately, things aren’t so easy.

Here a reader e-mail that I definitely empathize with:

While I understand the dangers of performance-chasing, I’m getting more and more annoyed that bonds don’t do their jobs at stabilizing my portfolio. Last few years, they seem to have a positive correlation with stocks.

Things I’d love to better understand:
– say an ETF like BND, wouldn’t the fact that we know interests will be high for some foreseeable future already baked in the price of BND?
– Moving away from bonds at this point seems “late to the party” and market-timing…but like I said, I’m getting increasingly annoyed
– What could be good alternatives? What about dividend stocks such as the VIG ETF or some REITs?

Here’s a related excerpt from the Institutional Investor article Here’s Proof That Stocks Were Never an Inflation Hedge (emphasis mine):

Years of outsize returns also lulled investors on the correlation between stocks and bonds. Fixed income has historically acted as a portfolio stabilizer when markets are declining. When stocks tank, bonds have done well. But that correlation has changed over time.

From 1900-1949, Marsh explained, Credit Suisse found that the average correlation between stocks and bonds globally was 0.45, while from 1950 to 1999, the relationship had a correlation of 0.34.

As the authors wrote in the report: “The recent fortunes of 60/40 equity/bond strategies are a painful example of this, having trusted too heavily in the recent negative correlations between the two assets rather than properly consulting the history books.”

Here’s a direct quote from the Credit Suisse Global Investment Returns Yearbook 2023 (emphasis mine):

Many investors were caught off balance by the simultaneous fall in stocks and bonds and the poor performance of a classic 60:40 equity-bond portfolio (see Chapter 4). Over the previous two decades, investors had grown used to stocks and bonds providing a hedge for each other. However, we cautioned last year that this had been exceptional in the context of history. The negative correlation had been associated with a period of falling real interest rates, mostly accommodative monetary policy and generally low inflation, and we pointed out that “change was in the air.”

While bonds have had short periods of negative correlation with stocks, unfortunately the long term correlation is still moderately positive. In other words, bonds still tend to move in the same direction as stocks, just not as much. Bonds do have a stabilizing effect, but aren’t always an offsetting hedge to stock market drops.

I like to keep in mind that as interest rates rise, that means that the Fed has more room to cut rates quickly if a true recession occurs again and inflation cools. The Vanguard Total Bond ETF (BND) covers nearly the entire taxable bond universe and thus includes lots of different maturities with an average effective duration of about 6.5 years.

A useful rule of thumb is that for every 1% change in interest rates, the value of the bond will either increase or decrease by the same amount as its duration. So a 1% rate hike and it will go down 6.5%, and a 1% rate cut and it will go up 6.5%. If you want things more chill, you may want to pick a short duration and accept the lower returns.

If you zoom out on the Growth of $10,000 chart for the Vanguard Total Bond ETF, you can see it going up from the rate cuts and back down with the rate hikes. $10,000 invested in 2013 is worth about $11,000 today. That’s not a great rate of return but the ride was smooth compared to other asset classes, and with shorter-term bonds, it would have been even milder.

Higher yields also mean higher future returns. You may want to reconsider bailing out of bonds now. The Morningstar article The Return of the Bond Market summarizes the dynamic well:

Bonds have been painful and frustrating and have required a ton of patience.

But now the market has recalibrated, and yields have reset higher. Higher yields mean higher future returns. And for the first time in a while, you can make the argument that bonds provide true competition to stocks.

But a key aspect of the bond market is interest rates adjusting higher from zero, hurting most at the beginning. An increase in rates from 4% to 5% will be much less dramatic than the move from 1% to 2%, for the simple fact that if you’re getting paid a coupon of 4% to 5% and you reinvest, it has a tremendous compounding effect that isn’t replicated with 1%–2% yields.

In the end, I can’t predict future interest rates. If you want less sensitivity to interest rates, you should own shorter-term bonds or even just money market funds. Just know that if/when rates go down again, then BND will go back up a lot more than the money market fund. I personally hold a mix of cash/money market, short-term, and intermediate-term US Treasury bonds, CDs, and cash. I keep my overall average duration to less than 5 years. My overall yield is now close to 4%, rather than than 2%. These particular assets have a job in my portfolio as stabilizers, and I see them as still doing their job despite the losses when rates go up.

Filed Under: Investing //

Free Kids Book About the Banking System (PDF/EPub)

Posted on March 26, 2023 // 2 Comments

Are your kids curious about the banking system? Are you? Law professor Mehrsa Baradaran wrote A Kids Book About Banking and it is currently available free via download in either PDF or EPub format. Physical copies (not free) are available on Amazon. Found via Axios.

Silicon Valley Bank (SVB) collapsed overnight and we found ourselves wishing we knew more about how banks worked… so, we made a book!

When you think of a bank, what comes to mind? A building? A safe, filled with gold? What if we told you banks weren’t any of these things? And (get ready for this)…most money isn’t even kept in the bank! Banking is a system that allows money to move from one place to another, creating opportunities and growth. And banks only work with a shared belief in the magic of money.

It’s a good way to start a conversation, but be warned, it might be kind of scary to YOU as an adult to be reminded that all your bank deposits, the result of possibly decades of hard work, are just a bunch of 1s and 0s on a computer database somewhere. There is no gold in a vault. There are just banks taking your money and creating even more money via fractional-reserve banking. But it all collapses if we don’t collectively trust the system, or “believe in magic”. Every time I read about this system, I reconsider buying a plot of land nearby that I can see and walk on.

I tried reading it to my youngest kid, but she preferred talking vegetables and listening to The Cool Bean for the 87th time instead. I think she’s still in the trading strange metal coins for candy phase of learning about money.

Filed Under: Banking, Book Reviews, Deals & Offers //

Passive Income via Fidelity Securities Lending: Expectation vs. Reality

Posted on March 22, 2023 // 10 Comments

I just experienced my own version of the “Expectation vs. Reality” meme when I looked at my monthly report from my Fidelity Investments securities lending activities, where I lend out my stock shares and get paid interest. I had been getting a lot of transaction notifications where all my shares of Paramount (PARA) were being lend out to somebody (most likely to short it).

Expectation. I previously wrote about earning some extra income via Fully Paid Lending Programs in general, including that from Fidelity. In December 2021, Fidelity was showing this as an example scenario:

As of March 2023, the example scenario on the official Fidelity page shows a significantly lower income rate:

Still, over $400 a month of extra income from a $100,000 balance? I have a six-figure taxable Fidelity account, so I figured I was leaving money on the table! Let’s go!

Reality. Out of all my stock holdings, the only one to garner any lending interest was Paramount. This mostly makes sense in retrospect, as I tend to buy larger, high-quality companies when they are temporarily out of fashion. You don’t really see a lot of people shorting Berkshire Hathaway. Paramount is more of a value/cheap P/E and/or dividend play. (Although, Berkshire does own 10% or so of Paramount…)

Here are my real-world stats on Paramount:

Shares on loan: 582

Market price: ~$23

Market value: ~$13,386

Annualized lending interest rate: 0.25%

Daily accrual: ~$0.10 a day.

Monthly pro-rated income: $2.79

Actual income: $1.91 (only borrowed for 19 days)

So… basically I was making 10 cents a day lending out my $13,000 of Paramount shares. At that rate, even if I had $100,000 worth of Paramount, I’d be making roughly 77 cents a day, or $23 a month. Nowhere near the $479 a month example.

Add in the fact that PARA is the only security being lent out in my entire portolio, and my securities lending income is currently working out to a pro-rate amount of less than 0.0004%, or 0.04 basis points.

Filed Under: Deals & Offers, Investing //

Ally Bank 11-Month No Penalty CD Review: 4.75% APY (No Minimum)

Posted on March 20, 2023 // 40 Comments

Rates now up to 4.75% APY. It’s always nice when you can get a higher rate without having to move your money to a whole new bank. Ally Bank raised the rate on their 11-month No Penalty CD to 4.75% APY for all balances with no minimum deposit. If you have older No-Penalty CDs, you may want to take advantage of this higher rate.

The 11-month No Penalty CD is unique in that while the rate is locked in at deposit, you can still withdraw your principal and interest without penalty at any time (well, you must wait at least 6 days from the deposit date). In other words, your interest rate can never go down, but you can still jump ship if rates rise or if there is a better promo elsewhere.

For comparison, the Ally Online Savings account is currently at 3.60% APY (as of 3/20/23) for all balances. The interest rate on the savings account can go up or down. The Ally 12-month CD is at 4.50% APY and 18-month CD is at 5.00% APY, which is fixed but if you withdraw early there is a penalty of 60 days of interest for both CDs.

If you recently opened one of these, remember that Ally Bank offers a “Ten Day Best Rate Guarantee”:

When you fund your CD within 10 days of your open date, you’ll get the best rate we offer for your term and balance tier if our rate goes up within that time. The Ally Ten Day Best Rate Guarantee also applies at renewal.

If you have an existing No Penalty CD past the 10-day rate guarantee, this means you may consider closing it and then opening up a new one at a higher rate. You will have to withdraw everything at once – there are no partial withdrawals allowed on this type of CD. If you have an Ally savings or checking account, you can close the old CD, see the deposit in your savings/checking, and open up a new CD all in minutes online. (Note that savings accounts are limited to 6 withdrawals per month, so use your checking if possible.) You will be extending the term out another 11 months, but since you can always close it at any time it isn’t much of a concern.

Here’s an (old) screenshot of my withdrawal showing no penalty and instant availability when withdrawn directly into an Ally account:

ally_np_withd

You can use my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over.

Bottom line. The Ally No Penalty CD is unique in that you are always able to move out to a higher rate, but you’ll never get a lower one. This means you can even break the No Penalty CD simply to get another No Penalty CD if/when the rate rises again.

Filed Under: Banking, Deals & Offers //

Stocks Are Not an Inflation Hedge (But Own Them Anyway)

Posted on March 16, 2023 // 7 Comments

Per Wikipedia, a financial “hedge” is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. Wouldn’t be nice if for every Investment A, there was another Investment B that would always move in the opposite direction? Unfortunately, things aren’t so easy.

A common question: Should we own stocks as a hedge against inflation? The Institutional Investor article Here’s Proof That Stocks Were Never an Inflation Hedge provides a little of clarification:

“Equities are not an inflation hedge. When inflation is high, they tend to do poorly. But in the long run, they have beaten inflation, so a lot of people claim they’re an inflation hedge, but [that claim is the result of confusion]. In the long run, stocks beat inflation, but they do it because of the equity risk premium. They are not an inflation hedge. They have a negative correlation with inflation,” said Marsh.

Historically, stocks actually tend to go down when inflation goes up.

Here’s a chart of the correlations between inflation and various asset classes over the last 120+ years from the Credit Suisse Global Investment Returns Yearbook 2023:

Here is Warren Buffett in his 2022 Berkshire Shareholder letter (emphasis mine):

During the decade ending in 2021, the United States Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion.

Though economists, politicians and many of the public have opinions about the consequences of that huge imbalance, Charlie and I plead ignorance and firmly believe that near-term economic and market forecasts are worse than useless. Our job is to manage Berkshire’s operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur. Berkshire also offers some modest protection from runaway inflation, but this attribute is far from perfect. Huge and entrenched fiscal deficits have consequences.

We can’t predict inflation, and we can’t expect stocks to go up when inflation does hit. However, we depend on businesses as a whole to continuously adapt (raising prices, lowering input costs, switching to alternative products, etc), so our best choice is to hold stocks and hope they continue to adapt through capitalism. If we only hold cash, we can only expect to break even after inflation at best, and usually go negative after taxes.

Filed Under: Investing //

How To Destroy Your Wealth

Posted on March 15, 2023 // 1 Comment

Charlie Munger and his principle of inversion tells us that sometimes the easiest way to achieve something is to flip it and consider the best ways to accomplish exactly what you are trying to avoid. Accordingly, check out this slide deck about Avoiding Financial Disasters by Barry Ritholtz (full 1-hour video presentation here).

If you would like to destroy your wealth, here are the top 10 ways to do so:

This may sound overly simple, but nearly every single wealthy person who has gone broke has used one of these methods. Obviously some of these are harder to avoid than others, but most are clearly identifiable and avoidable. Give them a wide berth. For example, if you had most of your net worth in shares of Silicon Valley Bank or Signature Bank, you may have made big gains for a while, but in the end be left with nothing. You should only have to get rich once.

Also see: How To Make Your Life Completely Miserable

(Top photo credit to Jp Valery on Unsplash)

Filed Under: Investing, Retirement //

Ask the Readers: How to Get Cash from Balance Transfers in 2023? (Credit Card Arbitrage)

Posted on March 14, 2023 // 28 Comments

Recent events have reminded us that banks make money by taking in deposits at low interest rates and reinvesting those deposits at higher interest rates (either bonds or directly making loans themselves). When you see a credit union have a certificate special, that usually means it needs more deposits to fund commercial, residential, or personal loans to its members. This is a form of arbitrage. (Usually this works just fine, as long as your depositors don’t try to ask for all their money bank at once.)

With short-term interest rates now at 5% again, this brings back the possibility of credit card arbitrage to individuals. Borrow money with a no or low-fee 0% APR balance transfer, invest it in FDIC-insured banks at 5%, and you have significant rate spread. At that spread, borrowing $10,000 will make $500 a year, while borrowing $50,000 will make $2,500 a year.

Back around 2005, I was pretty heavy into this game as it was the equivalent of a 10%+ increase in my annual income. I knew all the ways that I could turn a balance transfer into cash. Some issuers gave out balance transfer checks, other issuers let you direct deposit a balance transfer into your bank account, and finally I could also transfer a balance larger than my actual balance and then request a credit refund via check. For example, I might have a $2,000 average recurring monthly balance as a regular customer at Bank A but then request a $12,000 balance transfer from Bank B. That would leave a negative $10,000 credit balance at Bank A, which they would send back to me as a check.

Interest rates have been very low for a very long time, and I haven’t used a balance transfer for a very long time. (There is a reason why credit card companies will give you 0% APR for 21 months, and it isn’t because they are nice people who enjoy giving out free loans. It’s because they get to charge you 24% interest after that introductory period.)

So, I ask you kind and intelligent readers: Has anyone tried to obtain cash directly via a credit card balance transfer recently? If so, what was your experience? What worked, what didn’t, and with which card issuer?

Filed Under: Banking, Credit Cards, Deals & Offers //

FDIC Insurance: Don’t Waste This Valuable Insurance

Posted on March 12, 2023 // 8 Comments

The big financial news over the weekend was the failure of both Silicon Valley Bank and Signature Bank. They failed, the FDIC took over and fulfilled its duties, and then the uninsured business owners convinced the Fed to backstop everything (aka “bail them out”).

As a simple individual investor trying to keep his family assets safe, my first takeaway was simply that you can’t expect to see a bank failure coming. Silicon Valley Bank was the cool kid for a long time. Here’s a chart from Avios of its stock price vs. an index tracking bank stocks overall:

Most of Silicon Valley Bank’s deposits were from start-up businesses, but individual households had accounts with them as well. I don’t mean to pick on DepositAccounts, but they are a respected site and they gave Silicon Valley Bank a Health Grade of A:

How is the average investor supposed to do any better? This is why I don’t care about health grades for banks from anyone. I don’t need to examine their investment portfolio, underwriting standards, or stock price. As a depositor, either they have FDIC insurance, or they don’t.

Big name banks can fail even if their assets are greater than their deposits. Silicon Valley Bank and Signature Bank are now the second and third largest bank failures ever (even inflation-adjusted), and only behind to Washington Mutual during the financial crisis. From WSJ:

I wonder how the list will look in a year?

As an individual, there is no reason to exceed the FDIC insurance limits.. FDIC insurance provides great peace of mind. Don’t waste it.

Got anywhere close to $250,000 in a single bank account? Know that the FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. You may actually achieve more than $250,000 of total coverage at a single bank, depending on how you have titled your accounts. Here are the official online calculators:

NCUA Electronic Share Insurance Calculator (ESIC)
FDIC Electronic Deposit Insurance Estimator (EDIE)

Filed Under: Banking, Insurance //

Best Interest Rates on Cash – March 2023

Posted on March 7, 2023 // 12 Comments

Here’s my monthly roundup of the best interest rates on cash as of March 2023, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or portfolio stability, and there are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn. Rates listed are available to everyone nationwide. Rates checked as of 3/7/2023.

TL;DR: 5% (fintech only) or 4.55% APY available on liquid savings. 5% APY available on multiple short-term CDs. Compare against Treasury bills and bonds at every maturity (12-month now above 5%). 6.89% Savings I Bonds can be bought with 2023 annual limits now.

Fintech accounts
Available only to individual investors, fintech companies often pay higher-than-market rates in order to achieve fast short-term growth (often using venture capital). “Fintech” is usually a software layer on top of a partner bank’s FDIC insurance.

  • 4.45% APY ($1 minimum). SaveBetter lets you switch between different FDIC-insured banks and NCUA-insured credit unions easily without opening a new account every time, and their liquid savings rates currently top out at 4.45%. This system makes it easier for you to maintain a top rate even if one bank decides to drop out of the “rate race”. 😉 There is usually another bank waiting in the wings that is still looking for deposits.
  • 5% on up to $25,000, then 4% up to $250k. Juno now pays 5% on all cash deposits up to $25,000 and 4% on cash deposits from $25,001 up to $250,000. No direct deposits required. $10 referral bonus. Please see my Juno review for details.
  • 4.00% APY on $6,000. Current offers 4% APY on up to $6,000 total ($2,000 each on three savings pods). Must maintain a direct deposit of $200+ every 35 days. $50 referral bonus for new members with $200+ direct deposit with promo code JENNIFEP185. Please see my Current app review for details.

High-yield savings accounts
Since the huge megabanks STILL pay essentially no interest, everyone should have a separate, no-fee online savings account to piggy-back onto your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • The leapfrogging to be the temporary “top” rate continues. UFB Direct at 4.55% APY. All America/Redneck Bank is at 4.25% APY for balances up to $75,000 ($500 to open, no min balance). Primis Bank dropped their rate, but grandfathered existing customers for the time being.
  • SoFi Bank is now up to 3.75% APY + up to $275 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has their own bank charter now so no longer a fintech by my definition. See details at $25 + $250 SoFi Money new account and deposit bonus.
  • There are several other established high-yield savings accounts at 3.40%+ APY that aren’t the absolute top rate, but historically do keep it relatively competitive for those that don’t want to keep switching banks.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (plan to buy a house soon, just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. CIT Bank has a 11-month No Penalty CD at 4.10% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 4.00% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 3.85% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Western Alliance Bank via SaveBetter has a 12-month certificate at 5.01% APY. $1 minimum. Early withdrawal penalty is 270 days of interest.
  • BMO Harris has a 12-month certificate at 5.00% APY. $1,000 minimum. Early withdrawal penalty is 180 days of interest.
  • Capital One Bank has a special 11-month certificate at 5.00% APY. Offer ends 3/14/23. No minimum deposit, early withdrawal penalty of 3 months of interest.

Money market mutual funds + Ultra-short bond ETFs*
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). * Money market mutual funds are regulated, but ultimately not FDIC-insured, so I would still stick with highly reputable firms. I am including a few ultra-short bond ETFs as they may be your best cash alternative in a brokerage account, but they may experience losses.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 4.51%. Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 4.54% SEC yield ($3,000 min) and 4.64% SEC Yield ($50,000 min). The average duration is ~1 year, so there is some term interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 4.71% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 4.79% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks and are fully backed by the US government. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 3/6/23, a new 4-week T-Bill had the equivalent of 4.68% annualized interest and a 52-week T-Bill had the equivalent of 5.06% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 4.41% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 4.34% SEC yield and effective duration of 0.08 years.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.

  • “I Bonds” bought between November 2022 and April 2023 will earn a 6.89% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-April 2023, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.
  • See below about EE Bonds as a potential long-term bond alternative.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • Genisys Credit Union pays 5.25% APY on up to $7,500 if you make 10 debit card purchases of $5+ each, and opt into receive only online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Pelican State Credit Union pays 5.11% APY on up to $10,000 if you make 15 debit card purchases, opt into receive only online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • The Bank of Denver pays 5.00% APY on up to $15,000 if you make 12 debit card purchases of $5+ each, receive only online statements, and make at least 1 ACH credit or debit transaction per statement cycle. Thanks to reader Bill for the updated info.
  • All America/Redneck Bank pays 4.50% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • Presidential Bank pays 4.625% APY on balances between $500 and up to $25,000 (3.625% APY above that) if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Credit Human has 24-month to 35-month CDs at 5.50% APY. $500 minimum to open. The early withdrawal penalty is 365 days of interest. Anyone can join this credit union via partner organization (no fee).
  • Sallie Mae Bank via SaveBetter has a 27-month CD at 4.85% APY. $1 minimum. Early withdrawal penalty is 180 days of simple interest.
  • Seattle Bank has a 5-year certificate at 4.70% APY ($1,000 min), 4-year at 4.65% APY, 3-year at 4.60% APY, 2-year at 4.55% APY, and 1-year at 4.50% APY. The early withdrawal penalty for the 5-year is a very reasonable 180 days of interest.
  • Lafayette Federal Credit Union has a 5-year certificate at 4.63% APY ($500 min), 4-year at 4.58% APY, 3-year at 4.52% APY, 2-year at 4.47% APY, and 1-year at 4.42% APY. They also have jumbo certificates with $100,000 minimums at even higher rates. The early withdrawal penalty for the 5-year is very high at 600 days of interest. Anyone can join this credit union via partner organization ($10 one-time fee).
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I don’t see any competitive 5-year non-callable CDs. Be wary of higher rates from callable CDs, which means they can call back your CD if rates drop later.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CDs at (none available, non-callable) vs. 3.80% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate, currently 2.10% for EE bonds issued November 1, 2022 to April 30, 2023. As of 3/6/23, the 20-year Treasury Bond rate was 4.14%.

All rates were checked as of 3/7/2023.

Filed Under: Banking, Deals & Offers, Investing //

Berkshire Hathaway 2022 Annual Shareholder Letter by Warren Buffett Notes

Posted on March 6, 2023 // 1 Comment

Berkshire Hathaway (BRK) released its 2022 Letter to Shareholders, which is how Warren Buffett updates his fellow shareholders annually on the status of the business. Direct ownership of Berkshire Hathaway shares was one of my first “self-directed” investments (above index fund holdings) for both educational and profit purposes. The reason that people like me always mention Warren Buffett is not because he is smart, but because he is an excellent teacher that cuts through the fog of complex subjects. He writes this letter with his sister in mind. This year’s letter is only 9 pages long, so I recommend reading it for yourself.

This year, the letter covered a lot of familiar ground. That’s the thing about investing and personal finance though, most of it is just sticking with a few simple yet critical ideas for years and years. Build the habit to act honorably and rationally every day, and keep avoiding risks where you can lose everything. Here are my personal highlights.

Berkshire shareholders are different.

We believe Berkshire’s individual holders largely to be of the once-a-saver, always-a-saver variety. Though these people live well, they eventually dispense most of their funds to philanthropic organizations. These, in turn, redistribute the funds by expenditures intended to improve the lives of a great many people who are unrelated to the original benefactor. Sometimes, the results have been spectacular.

Berkshire owns both businesses in their entirety and pieces through publicly-traded stock shares. They take the long-term view with both:

Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.

As investors, don’t cut the flowers and water the weeds. Hold onto those flowers. This applies to index fund investing as well. If you buy the entire haystack, you are guaranteed to own the needles (flowers).

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

The pillars: continuous saving, the power of compounding, avoiding catastrophic failures, and the American Tailwind.

Thus began our journey to 2023, a bumpy road involving a combination of continuous savings by our owners (that is, by their retaining earnings), the power of compounding, our avoidance of major mistakes and – most important of all – the American Tailwind. America would have done fine without Berkshire. The reverse is not true.

More on the importance of risk management and having skin in the game. What do you do? “I own a boatload of cash and a wide array of businesses.” Sounds perfect. 😁

As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses. We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses. Our CEO will always be the Chief Risk Officer – a task it is irresponsible to delegate. Additionally, our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money.

Don’t count on Berkshire being broken apart or starting to distribute dividends anytime soon:

And yes, our shareholders will continue to save and prosper by retaining earnings.

At Berkshire, there will be no finish line.

The letter ends with a bunch of wise quotes from Charlie Munger. Here’s just one.

There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.

Past shareholder letter notes.

The 2024 annual shareholder meeting will be in Omaha on Saturday, May 4th. CNBC will most likely livestream it again.

Filed Under: Inspirational, Investing //
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