Study: 100% Stocks The Best Portfolio For Both Accumulation and Retirement Income?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The academic paper Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice by Anarkulova, Cederburg and O’Doherty had a conclusion that caught my eye. From the abstract:

We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.

Now, the actual paper was not written for non-academics and there was very slim pickins’ in the “easy-to-understand graphic that summarizes our results” department, but I’ll try my best. They studied 8 different portfolios, summarized below. (They also picked the names.)

  • TDF. Follows the asset allocation of the most popular target-date funds, which use a glide path that starts at 90% equities but reduces equity percentage over time.
  • Balanced. 60% US stocks, 40% bonds.
  • Balanced/I. 30% US stocks, 30% International stocks, 40% bonds.
  • Age. (120-Age)% US stocks, (Age-20)% bonds.
  • Age/I. (60-Age/2)% US stocks, (60-Age/2)% International stocks, (Age-20)% bonds.
  • Bills. Invests only in Treasury bills.
  • Stocks. 100% US stocks.
  • Stocks/I. 50% US stocks, 50% International stocks.

In the chart below, the authors show the equivalent savings rate that would have been required to reach the same level of “expected utility of retirement consumption” (retirement income provided + leftover money at death) throughout the entire lifecycle of a 10% savings rate during the working years and then spending it down at a 4% withdrawal rate in retirement.

Let’s look at the highlighted pink box. This is the line for the best performing portfolio of 50% US stocks, 50% International stocks (“Stocks/I”). In order to have gotten the same amount of retirement income + bequest as a 10% savings rate with Stocks/I, you would have had to save 14.1% with a TDF, 16.9% with the Balanced portfolio, and so on.

In another chart, we see that 50% US stocks, 50% International stocks (“Stocks/I”) also creates the highest income replacement rate in retirement, based on a 10% savings rate. This is true on average (50% percentile) and even in the worst-case scenarios (5th percentile), as long as you stayed with the plan. The drawdowns would have been temporarily more severe over certain periods of time, however.

My takeaways are:

  • You might consider a 100% stock portfolio with international exposure, if you really have the stomach for it. I’d probably recommend waiting until after you have survived a 50% crash first.
  • All of the other portfolios that contains some bonds (TDF, Balanced, Balanced/I, Age, Age/I) had very similar results over the entire lifecycle of accumulation and spending down. They still did pretty well.
  • Everyone should definitely own a good chunk of stocks, as trying to accumulate enough money with just safe “cash” in the form of Treasury bills or bank accounts is going to require in the neighborhood of 5 times the savings rate.
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Taking a Self-Paced CFP Education Course For Fun and… Personal Knowledge

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

While pondering potential goals for the New Year, I ended up poking around Certified Financial Planner (CFP) Certification Education Programs. I have been toying with the idea of taking one of these courses off and on for years, which helps you fulfill the first two requirements of obtaining the CFP certification:

  • Education. Completion of CFP Board-approved coursework, and a bachelor’s degree in any discipline from an accredited college or university.
  • Exam. Pass the CFP® Exam, which is 6 hours long and consists of 170 multiple-choice questions covering a variety of topics.
  • Experience. Complete 6,000 hours of professional experience related to the financial planning process, or 4,000 hours of apprenticeship experience that meets additional requirements.
  • Ethics. Pass the Candidate Fitness and Standards Background Check.

I have no plans to pursue a career as a financial planner, as even helping my parents with their portfolio is stressful enough on it own. Accordingly, I don’t plan on completing the Experience requirement and thus won’t be able to obtain the actual CFP certification. So why bother spending thousands of dollars and hundreds of hours of time?

  • I do plan on managing my own portfolio and financial situation (and portfolio of my parents) for the next few decades and beyond.
  • I know that I enjoy financial topics in general and am curious to fill any knowledge gaps that I have.
  • I’m curious about what the CFP board thinks is important and “correct”.
  • Hopefully I will find some useful information to share with you readers.
  • Even at a robo-advisor-like annual management fee of 0.30%, a $1 million portfolio would still cost $3,000 in fees each year. For someone who has accumulated a significant portfolio, it doesn’t seem completely reckless to spend $3,000 learning this stuff instead.

I read some reviews and comparisons, and somehow ended up on the website for the University of Georgia Self-Paced Online CFP® Program. This wasn’t the most well-known program, or the oldest program, but it seemed like a decent CFP Board-registered program and covered all the required topics at a relatively affordable cost of $3,250 (+$750 for optional textbooks). There are six courses and a capstone course where you develop an actual financial plan:

  • Fundamentals of Financial Planning
  • Insurance Planning
  • Investment Planning
  • Income Tax Planning
  • Retirement Planning
  • Estate Planning
  • Developing the Financial Plan

I filled out the form for a “free Demo”, and shortly thereafter received an e-mail offer for $700 off the “sticker” price. This offer has since expired, but I share this story for those seriously interested as you might also decide to express interest and see if you get an offer. The course itself appears to be run by a third-party called Greene Consulting, which runs the CFP courses for five different universities including UGA. (Yes, I checked them all, and they all list the same prices.)

Get instant access! Test drive the platform and learn why thousands of people have selected this Online CFP® Certification Education Program over the competition.

Complete the form below and get instant access to our online platform. View sample courses and interactive content.

Note: I have no affiliation with this program besides being a paying customer. Oh yes, I forgot, I impulsively bought the program after receiving the discount offer. I had already “anchored” myself to paying the $3,250 and felt it was a good deal… I fell for the old infomercial trick! Still, if you compare prices for CFP courses (full core content, excluding textbooks), this was definitely the cheapest net price that I’ve found.

This self-paced program allows you up to 21 months to complete all of the courses. My plan is to complete one course per month starting this month (February), and so right now I’m only about halfway through the first course “Fundamentals of Financial Planning”. I did go ahead and purchase physical textbooks (I’m old-fashioned… and old), but I haven’t had to open them yet. They use the financial textbooks from Money Education, and I paid $750 through UGA for the complete set.

Note that many financial professionals decide to take an additional “exam cram course” with lots of practice questions that is solely focused on passing the CFP Exam. This adds roughly another $1,000 on top of the ~$925 to actually take the CFP Exam itself! I don’t know if all that extra cost will be worth being able to say “I passed the CFP Exam!” when I don’t need the CFP certification for career advancement purposes.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


TurboTax Online Walkthrough: How To Enter US Treasury Interest from Money Market and Bond Funds/ETFs For State Tax Exemption

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

If you earned interest from a money market fund or bond mutual fund/ETF last year, a significant portion of this interest may have come from US Treasury bills and bonds, which are generally exempt from state and local income taxes. (California, Connecticut, and New York have special rules.) However, in order to claim this exemption, you’ll probably have to manually enter it on your tax return (or be sure to notify your accountant) after digging up a few extra details. The details are almost never included on your 1099-DIV form.

Here’s how to do it in at TurboTax.com, the online version of TurboTax tax software. (I received some requests for a more detailed walkthrough after my H&R Block version.) I found the following information from the TurboTax FAQ:

What about dividends from U.S. government bonds?

The federal government taxes income you receive from its own bonds. Although your state doesn’t tax income generated by U.S. government bonds, each state defines government bonds differently.

To find out if these dividends are taxable in your state, review your 1099-B along with the supplemental pages from your consolidated tax statement. If you can’t find the info, you might be able to get it from your brokerage or mutual fund company website.

Once you have found the info in your documents, just follow the screens here and we’ll help you enter an adjustment for the nontaxable amount in your state. When you get to your state taxes, we’ll subtract the adjustment from the income reported to your state.

I did not find “just follow the screens” especially helpful, so I started up a dummy return at TurboTax.com for 2023 and manually created a 1099-DIV form from “Apex Clearning” (sic) with $100,000 of total dividends. This is in the Federal return section. You may choose to import this form and then review it afterward.

This part should just be exactly the same as the 1099-DIV form that was sent to you. Don’t add any extra entries and just continue.

On the next screen, you should click on the box for “A portion of these dividends is U.S. Government interest.”

Here, you will enter the amount of interest (out of the amount in line 1a of your 1099-DIV) that represents interest from US government obligations. For example, if you received $100,000 in total dividends from the Vanguard Treasury Money Market Fund (VUSXX) in 2023, you will find it does meet the threshold requirements for California, Connecticut, and New York and it had a US government obligation percentage of 80.06% in 2023. In this example, $80,060 of the $100,000 in dividends would be excludable. I would enter $80,060 in the form below.

This information should carry through to your state tax return, reducing your state taxable income.

Here are some links to find the percentage of ordinary dividends that come from obligations of the U.S. government. You should be able to find this data for any mutual fund or ETF by searching for something like “[fund company] us government obligations 2023”. If you do not see the fund listed within the fund company documentation, it may be because it is 0%.

[Image credit – Tax Foundation]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Best Interest Rates on Cash – February 2024

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my monthly roundup of the best interest rates on cash as of February 2024, roughly sorted from shortest to longest maturities. There are often lesser-known opportunities available to individual investors, where you could earn a lot more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 2/5/2024.

TL;DR: Mostly minor movements. Still 5%+ savings accounts and short-term CDs, but no more 5-year CDs at 5% APY. Compare against Treasury bills and bonds at every maturity, taking into account state tax exemption.

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.

  • 5.32% APY ($1 minimum). Raisin 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 5.32% APY. See my Raisin review for details. Raisin does not charge depositors a fee for the service.
  • 5.36% APY (before fees). MaxMyInterest is another service that allows you to access and switch between different FDIC-insured banks. You can view their current banks and APYs here. As of 12/6/23, the highest rate is from Customers Bank at 5.36% APY. However, note that they charge a membership fee of 0.04% per quarter, or 0.16% per year (subject to $20 minimum per quarter, or $80 per year). That means if you have a $10,000 balance, then $80 a year = 0.80% per year. This service is meant for those with larger balances. You are allowed to cancel the service and keep the bank accounts, but then you may lose their specially-negotiated rates and cannot switch between banks anymore.

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 and solid user experience. 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 top rate at the moment is at Milli (app only) at 5.50% APY. BrioDirect at 5.35% APY. CIT Platinum Savings at 5.05% APY with $5,000+ balance.
  • SoFi Bank is now up to 4.60% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has historically competitive rates and full banking features. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • Here is a limited survey of high-yield savings accounts. They aren’t the highest current rate, but historically have kept it relatively competitive and I like to track their history.

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. Raisin has a 5-month No Penalty CD at 5.36% APY with $1 minimum deposit and 30-day minimum hold time. CIT Bank has a 11-month No Penalty CD at 4.90% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 4.25% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 4.70% APY with a $500 minimum deposit. Consider opening multiple CDs in smaller increments for more flexibility.
  • Lafayette Federal Credit Union has a 1-year certificate at 5.56% APY ($500 min). They also have jumbo certificates with $100,000 minimums at even higher rates, but a harsh 180-day penalty if you withdraw your CD funds before maturity. Anyone can join this credit union via partner organization ($10 one-time fee).
  • CIBC Agility Online has a 12-month CD at 5.51% APY. Reasonable 30-day penalty if you withdraw your CD funds before maturity.

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). Note: Money market mutual funds are highly-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 5.28% (changes daily, but also works out to a compound yield of 5.41%, which is better for comparing against APY). Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 5.39% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 5.15% 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, which can make a significant difference in your effective yield.

  • 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 2/5/24, a new 4-week T-Bill had the equivalent of 5.39% annualized interest and a 52-week T-Bill had the equivalent of 4.64% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.17% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.24% 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 2023 and April 2024 will earn a 5.27% 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.

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.

  • OnPath Federal Credit Union pays 7.00% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, and login to online or mobile banking once per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization. You can also get a $100 Visa Reward card when you open a new account and make qualifying transactions.
  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into 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 $5 membership fee to join partner organization.
  • Pelican State Credit Union pays 6.05% APY on up to $20,000 if you make 15 debit card purchases, opt into online statements, log into your account at least once, 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.
  • Orion Federal Credit Union pays 6.00% APY on up to $10,000 if you make electronic deposits of $500+ each month (ACH transfers count) and spend $500+ on your Orion debit or credit card each month. Anyone can join this credit union via $10 membership fee to partner organization membership.
  • All America/Redneck Bank pays 5.30% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • 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.

  • Library Of Congress Federal Credit Union has a 60-month CD at 4.84% APY with $500 minimum. Shorter terms are pretty competitive as well: 4-year at 4.89% APY. 3-year at 5.25% APY. 2-year at 5.20% APY. 1-year at 5.35% APY. The early withdrawal penalty for the 5-year is 180 days of interest. Anyone can join this credit union via partner organization.
  • BMO Alto has a 5-year CD at 4.60% APY. 4-year at 4.60% APY. 3-year at 4.60% APY. 2-year at 4.75% APY. 1-year at 5.30% APY. No minimum. The early withdrawal penalty (EWP) for CD maturities of 1 year or more is 180 days of interest. For CD maturities of 11 months or less, the EWP is 90 days of interest. Note that they reserve the right to prohibit early withdrawals entirely. Online-only subsidiary of BMO Bank.
  • 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 see a 5-year non-callable CD at 4.10% APY (callable: no, call protection: yes). Be warned that now both Vanguard and Fidelity will list higher rates from callable CDs, which importantly 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 [n/a] (callable: no, call protection: yes) vs. 4.16% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.

All rates were checked as of 2/5/2023.

Photo by micheile henderson on Unsplash

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


H&R Block Online Walkthrough: How To Enter US Treasury Interest from Money Market and Bond Funds/ETFs For State Tax Exemption

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

If you earned interest from a money market fund or bond mutual fund/ETF last year, a significant portion of this interest may have come from US Treasury bills and bonds, which are generally exempt from state and local income taxes. (California, Connecticut, and New York have special rules.) However, in order to claim this exemption, you’ll probably have to manually enter it on your tax return after digging up a few extra details.

Here’s how to do it in at HRBlock.com, the online version of H&R Block tax software. I found the two following quotes from the H&R Block FAQ:

How do I enter interest from U.S. Treasury obligations?
This information doesn’t appear on the form, but we’ll need it to calculate the tax-exempt interest on your state return. This information won’t affect your federal return.

Where do I report U.S. Treasury obligations from Form 1099-DIV?
Report them in the Income section on the Interest topic. Enter them as U.S. Savings Bond and Treasury obligation income.

These two answers somewhat conflict with each other, so I just started a new dummy return as a California resident to look around. If you don’t find a box to enter the interest during the 1099-DIV entry process in your Federal return interview (I did not see this), you should be able to enter the information in the State return portion of the interview.

Under the “Income” section of the State Return, there will a screen called “Your Income Adjustments and Deductions”. Here there should be a place to report US Treasury dividends.

Click on “Add” and you will be asked to enter the “US Treasury dividends excludable in [Your State]”. For example, if you received $100,000 in total dividends from the Vanguard Treasury Money Market Fund (VUSXX) in 2023, you will find it does meet the threshold requirements for California, Connecticut, and New York and it had a US government obligation percentage of 80.06% in 2023. In this example, $80,060 of the $100,000 in dividends would be excludable.

Here are some links to find the percentage of ordinary dividends that come from obligations of the U.S. government. You should be able to find this data for any mutual fund or ETF by searching for something like “[fund company] us government obligations 2023”]. If you do not see the fund listed within the fund company, it may be assumed to be 0%.

[Image credit – Tax Foundation]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


More Data in Support of Buy and Hold Investing

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The film Tune Out the Noise ended up as a story of how a small group of “data freaks” gathered and analyzed a huge amount of historical data early on in the digital revolution, and made a series of big realizations. The one that most people know is that an S&P 500 index fund does a good job harvesting the “market premium” (the higher return of stocks over bonds) at a very low cost. Vanguard became a juggernaut by offering rock-bottom cheap access to this market premium.

But DFA went further and focused on other discoveries in the data like the “size premium” (smaller-cap stocks tended to outperform larger-cap stocks) and the “value premium” (low price/book ratio stocks tended to outperform higher price/book ratio stocks). This is what DFA does, it digs deeper into the data and charges more for their interpretation of the results. I personally view these as less reliable than the market premium, and at a slightly higher cost. Will they be worth it? I don’t know, and that is why I only place a smaller bet on them. But it is important to remember that the idea of stocks returning more than bonds is also a bet. There is no guarantee.

However, it’s also very useful to know what type of stuff doesn’t work. In fact, a recent NY Times article In the Stock Market, Don’t Buy and Sell. Just Hold (full gift article) highlights a study – done by the same DFA company of “data freaks” – that dug deep into potential market timing methods.

Most of us are better off living with the reality that the stock market moves down as well as up, and that we can’t beat it. A new study provides fresh evidence of why it makes sense to strive for an absolutely middling return. And the study implies that a simple, unspectacular strategy — buying and holding the entire market through low-cost index funds — is probably the best bet for most people.

Here is a DFA article We Found 30 Timing Strategies That ‘Worked’ — and 690 That Didn’t and the actual academic paper on SSRN, Another Look at Timing the Equity Premiums. From the abstract:

We examine strategies that time the market, size, value, and profitability premiums in the US, developed ex US, and emerging markets based on three common timing approaches: valuation ratio, mean reversion, and momentum. Out of the 720 timing strategies we simulated, the vast majority underperformed relative to staying invested in the long side of the premiums. While 30 strategies delivered promising outperformance at first glance, further analysis shows that their outperformance is very sensitive to specific time periods and parameters for strategy construction. Our results highlight the opportunity cost of mistiming the premiums and the importance of discipline for capturing the premiums.

Basically, they looked at 720 different ways that you could perform market timing. To start out, only about 30 out of the 720 actually created excess returns:

But out of those 30, if you tweaked just one of the variables, they mostly fell apart. For example, they found one that got you an extra 5.5% a year. Wow! But if you changed the rebalance period from annual to monthly, the excess return plummeted to only 1.5%. If you changed from international stocks to US stocks, you actually lost 3.8% a year.

In the end, the researchers couldn’t find a single way to time the market that was reliable.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Vanguard Federal Money Market Fund: How to Claim Your State Income Tax Exemption

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Updated January 2024. As the brokerage 1099 forms for 2023 are coming out, here is a quick reminder for those in states with local income taxes. If you earned interest from a money market fund, a significant portion of this interest may have come from US Treasury bills and bonds, which are generally exempt from state and local income taxes. However, in order to claim this exemption, you’ll have to manually enter it on your tax return after digging up a few extra details.

(Note: California, Connecticut, and New York exempt dividend income only when the mutual fund has met certain minimum investments in U.S. government securities. They require that 50% of a mutual fund’s assets at each quarter-end within the tax year consist of U.S. government obligations.)

Let’s take the default cash sweep option for Vanguard brokerage accounts, the Vanguard Federal Money Market Fund (VMFXX), which has an SEC yield of 5.29% as of 1/29/24. Vanguard has recently released the U.S. government obligations income information for 2023 [pdf] for all their funds, which states:

This tax update provides information to help you properly report your state and local tax liability on ordinary income distributions you received from your mutual fund investments in 2023. On the next pages, you’ll find a list of Vanguard funds that earned a portion of their ordinary dividends from obligations of the U.S. government. Direct U.S. government obligations and certain U.S. government agency obligations are generally exempt from taxation in most states.*

To find the portion of Vanguard dividends that may be exempt from your state income tax, multiply the amount of “ordinary dividends” reported in Box 1a of your Form 1099-DIV by the percentage listed in the PDF. Note that on the IRS Form 1099-INT, there is a special Line 3 that includes “Interest on US Savings Bonds & Treasury obligations”. However, for the Vanguard funds, they report on 1099-DIV and not 1099-INT. My Vanguard 1099-INT was all zeros.

For the Vanguard Federal Money Market Fund, this percentage was 49.37% in 2023. Therefore, if you earned $1,000 in total interest from VMFXX in 2023, then $493.70 could possibly be exempt from state and local income taxes. If your marginal state income tax rate was 10% that would be a ~$50 tax savings for every $1,000 in total interest earned. This could apply to certain residents with enough income in states like Oregon, Hawaii, or Minnesota but not California, Connecticut, and New York due to their unique restrictions mentioned earlier.

However, the Vanguard Treasury Money Market Fund (VUSXX) does meet the threshold requirements for California, Connecticut, and New York as it had a GOI percentage of 80.06% in 2023. If your marginal state income tax rate was 10% that would be a ~$80 tax savings for every $1,000 in total interest earned. With a SEC yield of 5.30% as of 1/29/24, this is why many people chose to manually buy VUSXX instead of the default settlement fund as it can earn you a higher after-tax interest rate.

The following Vanguard funds and ETF equivalents have 100% of their interest from US government obligations:

  • Short-Term Treasury Index Fund (VGSH, VSBSX)
  • Intermediate-Term Treasury Index Fund (VGIT, VSIGX)
  • Long-Term Treasury Index Fund (VGLT, VLGSX)
  • Extended Duration Treasury Index Fund (EDV)
  • Short-Term Inflation-Protected Securities
    Index Fund (VTIP, VTAPX)
  • Inflation-Protected Securities Fund (VIPSX, VAIPX)

Note that several other Vanguard funds have a lower but nonzero percentage of dividends from US government obligations, including the popular Vanguard Target Retirement Income funds. It may be worth a closer look.

I don’t believe that TurboTax, H&R Block, and other tax software will do this automatically for you, as they won’t have the required information on their own. (I’m also not sure if they ask about it in their interview process.) If you use an accountant, you should also double-check to make sure they use this information. Here is some information on how to enter this into TurboTax:

  • When you are entering the 1099-DIV Box 1a, 1b, and 2a – click the “My form has info in other boxes (this is uncommon)” checkbox.
  • Next, click on the option “A portion of these dividends is U.S. Government interest.”
  • On the next screen enter the Government interest amount. This will be subtracted from your state return.

Here are some links to find the percentage of ordinary dividends that come from obligations of the U.S. government. You should be able to find this data for any mutual fund or ETF by searching for something like “[fund company] us government obligations 2023”]. If you do not see the fund listed within the fund company, it may be assumed to be 0%.

Standard disclosure: Check with your state or local tax office or with your tax advisor to determine whether your state allows you to exclude some or all of the income you earn from mutual funds that invest in U.S. government obligations.

[Image credit – Tax Foundation]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


“Tune Out the Noise”: A Film about Index Funds and Dimensional Fund Advisors (DFA)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The film Tune Out the Noise is a documentary by Academy Award–winning director Errol Morris about the rise of academic finance, the computer analysis of market data, index funds, and the founding of Dimensional Fund Advisors (DFA). It appears that DFA commissioned this film, so it obviously will support their specific type of investing, but it should also explain the reasoning behind low-cost index funds and why high-expense active funds have been steadily losing market share over time.

Until 1/31, you can watch the film for free at film.dimensional.com/podcast with access code RATIONAL. They ask for name and e-mail, but don’t verify. This is offered through the Rational Reminder podcast, and you may also find interesting their interview with Errol Morris.

I learned about this through Paul Merriman’s newsletter:

Trust in the future of an investment may be the most important reason for most investors to stay the course for the long term. I formed a lasting trust in the academic work of Drs. Fama and French when I attended a 3 day workshop at Dimensional Fund Advisors in 1994.

That trust led our firm to use the DFA funds since the mid 90s. While I believe there are a lot of people who find our long term studies helpful, I’m not sure that all of those people understand that almost all of our studies, that go back to 1928, are based on the data from the academics who are associated with DFA. If you don’t already have a sense of trust about the source of our data, I think you will feel better if you watch the new documentary, “Turn Off the Noise.”

Here is a summary blurb about the film:

Tune Out the Noise is a documentary film about a group of unlikely upstarts who crossed paths at the University of Chicago in the middle of the 20th century, just as computers were first being used to analyze data. That serendipitous, monumental shift enabled them to develop, and then apply, research that turned Wall Street upside down, from its ineffectual investing methods to how those were sold to the public.

It’s a story about how finance became a science and challenged the traditional methods of investing. That, in turn, led to the invention of index funds, the founding of Dimensional Fund Advisors—an investment firm dedicated to implementing the science—and the evolution of client-focused financial advice. These advances have benefited generations of investors.

I am currently in the middle of watching the film (trying to finish before the free access ends), and it does have a very nice production quality while showing the backstory of many famous financial academics. It’s kind of nice to put a face with the names. I personally only invest a small portion of my portfolio into DFA and DFA-style funds (Avantis was started by former DFA executives), but I will watch the rest with an open mind and hope to learn some useful history.

Added after finishing the entire film: The film goes from the basic discoveries of efficient markets, the value of diversification, and the idea that a low-cost broad fund outperformed nearly all big investment trusts back then. It’s important to know that DFA takes the academic “backtesting” further than Vanguard. I enjoyed the history of CRSP and how all these data nerds got together. They did pretty much gloss over Vanguard with “Wells Fargo just handed the retail index fund concept to Bogle on a FREE silver platter”.

Vanguard is more about the big stuff. Diversification from holding the entire market and thousands of stocks, not just 100 or less. Lower expense ratio costs. Lower trading costs. Lower costs from not attempting and failing at market timing or chasing recent performance. But it’s all an algorithm of some sort, based on looking back at the historical data. The S&P 500 is an algorithm, just a simpler one that works well at a 0.05% expense ratio.

DFA is a more actively managed algorithm, but still keeps the broad diversification and lower expenses (they are still lowest quartile in expenses). They also focus on the Fama/French academically-found factors like size, value, quality. Again, historically small value stocks have outperformed on average for long periods of time. Will they keep doing so? I don’t know.

Is the DFA method better? Is the the DFA higher-return possibility worth more than the higher expenses they charge? In the past, you could only go through a financial advisor, which added yet another layer of fees, so my answer was an easier “no”. But DFA and Avantis have finally released ETFs which anyone can buy, and I have as a bet on about 10% of my portfolio (the part that bets on size and value anyway). I don’t bet the whole farm on it. I think lower costs and market-cap weighting are much more reliable. But if you want to know why, the film gives you an idea. Is it a commercial for DFA? Sure. But a documentary about index funds would also serve as a commercial for Vanguard, no?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Callan Periodic Table of Investment Returns 2023 Year-End Update

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Another year, another batch of bold predictions that are always based on recent past performance. The most common one this year is “Why not just own 100% US stocks? Why bother with international stocks? Why even bother with bonds?” Humility may not get you a lot of social media followers, but it’s a better long-term bet at making and keeping you wealthy.

Callan Associates updates a “periodic table” annually with the relative performance of 8 major asset classes over the last 20 years. You can find the most recent one at their website Callan.com. The best performing asset class is listed at the top, and it sorts downward until you have the worst performing asset. Above is the most recent snapshot of 2004-2023 (click to enlarge). I find it easiest to focus on a specific Asset Class (Color) and then visually noting how its relative performance bounces around.

The Callan Periodic Table of Investment Returns conveys the strong case for diversification across asset classes (stocks vs. bonds), capitalizations (large vs. small), and equity markets (U.S. vs. global ex-U.S.). The Table highlights the uncertainty inherent in all capital markets. Rankings change every year. Also noteworthy is the difference between absolute and relative performance, as returns for the top-performing asset class span a wide range over the past 20 years.

The best you can do is to identify assets that are a good long-term investment, with the acceptance that the short-term ride will be unpredictable and it won’t be at the top every single year. On the other hand, many of the recent losers will eventually come back. Look at the orange squares – Emerging Markets had some crazy-awesome years in the past, and everyone wanted to own them. These days, you rarely hear anything.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Robinhood IRA Transfer and 401k Rollover 3% Bonus Match (No Cap)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Robinhood Gold subscribers have the standard feature of a 3% match on all eligible annual IRA contributions. However, this bonus is somewhat limited as the annual IRA contribution limits are relatively low. 3% of $6,000 is $180, but Gold costs $60 a year. The primary benefit of Robinhood Gold is 5% interest on your cash sweep (otherwise it is only 1.5%). Here is their IRA match FAQ.

For a limited-time, Robinhood Gold has improved the offer to include a 3% match on IRA transfers and 401k/403b/457 account rollovers between January 17, 2024 and April 30, 2024, with no limit on the amount of match earned. You should open or have an open Traditional or Roth IRA (even if empty) with Robinhood and then transfer into the proper IRA container (pre-tax or Roth).

For folks with big IRAs or 401ks, this can be very significant bonus. A $100,000 IRA or 401k rollover would get you $3,000. $35,000 would get you over $1,000. $350,000 would get you over $10,000. Now that $60 a year for Robinhood Gold doesn’t seem as much of a hurdle!

The catch? You must keep the funds in your Robinhood IRA for at least 5 years to keep the match, and be a Robinhood Gold subscriber for 1 year after the first deposit that earns the 3% match. Details on the 3% limited-time offer here.

I’m certainly considering this offer, as I don’t think I’ve ever seen a bonus this large offered on a 401k rollover. However, I also think of Robinhood as amongst the “leanest” in customer service. I’ve done several ACAT transfers before, and they can spend a certain amount of time in “limbo” where your stocks have been taken out of the origination account, and hasn’t quite shown up in the destination account. It can be a bit nerve-wracking and I wouldn’t want to deal with Robinhood if something was lost in transit.

How long does it take for IRA transfers and 401(k) rollovers to complete?
For IRA transfers, after we receive an account transfer request, it typically takes 5-7 business days for the transfer to be completed in your Robinhood account. Check out Transfers and rollovers for more info. For 401(k) rollovers, this process can typically take 2-4 weeks for deposits to complete.

When will I get the match?
We’ll deposit your earned match after the eligible contributions settle in your account. For transfers, you’ll get the match as soon as they settle. For rollovers, you’ll get the match upon settlement, which is typically within 5-7 business days of receipt.

Along those same lines, I’m also not sure I want to keep my IRA there for 5 years. Most other brokerage transfer offers don’t have such a long hold time requirement.

Either way, I hope the idea of paying for IRA transfers catches on with some other brokers. Brokers fighting for assets works out especially well if you are a buy-and-hold investor. Robinhood says that transfers and rollovers will still earn a 1% match after 4/30/24. That’s actually still pretty good historically.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Consistently Investing $850 a Month x 10 Years = $160,000 (2014-2023)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Instead of only looking at year-to-date or last year’s return numbers that are often quoted in the media, I always try to also take a longer-term perspective (especially on down years) by looking back over a longer period. How would a steady investor have done over the last decade?

Target date funds. The Vanguard Target Retirement 2045 Fund is an all-in-one fund that is low-cost, globally-diversified, and available both inside many employer retirement plans and to anyone that funds an IRA. It currently holds over $75 billion in assets. When you are younger (up until age 40 for those retiring at 65), this fund holds 90% stocks and 10% bonds. It is a solid default choice in a world of mediocre, overpriced options. This is also a good benchmark for others that use low-cost index funds.

The power of consistent, tax-advantaged investing. For the last decade, the maximum allowable annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. This round number also makes it easy to multiply the results as needed to match your own situation. Save $5,000 a year? Halve the result. Save $20,000 a year? Double the numbers, and so on.

The real-world payoff from a decade of saving $833 a month. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years? With the interactive tools at Morningstar and a Google spreadsheet, we get this:

Investing $10,000 every year ($833 a month, or $384 per bi-weekly paycheck) for the last decade would have resulted in a total balance of approximately $159,000. That’s $100,000 in steady contributions and $59,000 in investment gains.

Early + Steady is better. There is a popular example of the power of compound interest that shows how someone who started saving at age 25, saves and invests for 10 years but then stops and never saves a penny again still beats someone who starts saving at 35 and keeps on saving for 30 years. Acorns provides a nice illustration:

Early + Steady + Longer is even better. The “Rule of 72” shows us that with just 7.2% annual returns, your money will double every decade from now on. After another 10 years, every $100k will be $200k. After another 10 years, that $200k will be $400k. Once you have that initial momentum, it just keeps going.

Now throw in half of your annual salary increases, and you’ll be honestly surprised at what it grows to after 20 years.

Here are my previous “Saving for a decade” posts:

Bottom line. Over time, with consistency and starting early, the yearly investment return swings smooth out. You can truly build serious wealth with something as accessible and boring as automated investments in a IRA/401k plan buying a Vanguard Target Retirement fund (or a simple collection of low-cost index funds).

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Save App Review: 9.07% APY Advertised vs. 0.00% APY Actual?! My Experience

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

(Update January 2024: I have updated this review with my final return numbers, along with additional details from my bank and brokerage statements. I hope it can help prospective users make a more educated decision.)

The Save app advertises a Market Savings Account that “combines the security of FDIC-insured bank deposits with the upside potential of market returns”. I took a glance at the advertised yields (see below) and quickly filed it under “probably too good to be true”, but still came back and took a shot due to the “free” 6X leverage offered where I could invest $1,000 and get the returns of $6,000 worth of investments.

These were the rates advertised to me at the time. I took a peek today (January 2024) and they are about the same.

A short theoretical story. Let’s say you have $1,000 and put it into a 1-year CD at an FDIC-insured bank that pays 5% APY. At the end of the year, you’d have $1,050 guaranteed. Now, imagine you went to Vegas and instead bet that $50 interest on red at the roulette table. Worst-case, you’d lose the $50 and still have $1,000. Best-case, you’d double the $50 and end up with $1,100. A 10% annual return! Now, you might charge a fee to others for this “service”. Nothing if they lose, but a little cut if they win. So $1,000 worst-case, and $1,096 if they win ($4 fee for the service). Venture capital funding, here I come!

This gives you a basic idea of what I believed was going on here, except replace Vegas with some fancy derivatives to give you market exposure to a portfolio of stocks and bonds.

The longer Save version. Here it is, straight from Save:

Every Save® account is connected with a FDIC-insured bank account. Your deposits are never at risk. We only invest the interest on your deposits, so no matter what happens with the ups and downs of the markets, your initial deposit is never at risk for investment loss.

This app is a combination of an FDIC-insured bank account, an SIPC-insured brokerage account, and an SEC-registered investment advisor. Your money is placed into an FDIC-insured account at Webster Bank that doesn’t earn any interest. Instead of paying you interest, they will buy a portfolio of securities that offer exposure to market products like stocks and bonds. These securities are held in a brokerage account with Apex Clearing, the same firm used by brokers like Robinhood, WeBull, etc. As your financial advisor, they will charge you a fee of 0.35% annually for this service. Ex. 0.35% of $1,000 is $3.50 a year. 0.35% of $10,000 is $35 a year.

This is all taken from Save’s official documents: press release, terms and conditions, SEC Form ADV, deposit agreement, and Form CRS.

Upon opening Market Savings and initiating a deposit to the Deposit Account, Save will, on behalf of you:

– deposit your funds in full into the Deposit Account provided by Webster, member FDIC and,
– purchase a strategy–linked security selected based on your risk tolerances within a Client Account

The Market Savings Product is comprised of a Deposit Account with Webster Bank, N.A. and a Client Account with Apex Clearing Corporation.

SAVE Advisers is an investment adviser registered with the SEC. SAVE Advisers provides its clients with combined banking products and wealth management services through a web-based algorithmically driven wrap-fee investment advisory program (the “SAVE Market Savings Wrap Program”).

The SAVE Market Savings Wrap Program is designed for investors with a cash savings investment profile. The investment objective of the SAVE Market Savings Wrap Program is to enhance our clients’ cash savings investment profile by providing attractive returns on capital using Save’s core investment philosophy while preserving their initial investment.

On the Market Savings Wrap Program, Clients will pay a wrap fee at a rate of 35 basis points (0.35%) per annum (one basis point is 1/100 of 1%) on either 1.) the total notional amount of each strategy–linked security or 2.) the total notional value of the Client Deposit Account (whichever is greater).

Save products are intended for conservative investors who are mostly concerned about the protection of their principal investments.

This is a similar concept to the No Risk Portfolio with 100% Money Back Guarantee. Your market-linked investment may go up 10%, 100%, or whatever, but the worst thing that can happen is it goes to zero (and you still get back your initial investment). According to this WSJ article (paywall), the CEO says the chance of a zero return in any given year is about 15%. This suggests that they are using some sort of leverage. (They also say the returns will count as long-term capital gains, unlike ordinary bank interest.)

The investments in Save portfolios are held for over a year so they are taxed as long-term capital gains.

This reminds me of the structured investments and “equity-linked returns with no downside” offered by many insurance companies. The insurance companies have much more onerous early withdrawal penalties where you can lose more than your initial principal, so this seems like a much lower cost option that is more aligned (they also get paid nothing if they return 0%), but this level of complexity is still not what I want for my primary portfolio. It feels more like wimpy gambling.

Where do they get those high advertised returns? Those are back-tested numbers:

Average annual returns are based on hypothetical back-tested performance by Save of the Save Moderate Portfolio from 2006 to present.

What happens if I try to withdraw my investment before the end of my term? There is a early withdrawal fee (a slightly complicated formula), but you’ll always at least get back your initial principal.

I understand that if I terminate my account prior to the completion of an investment term I may forgo all gains and receive back only my initial deposit.

Update: My final results from December 2022 to December 2023. I deposited $1,000 in December 2022, and ended up with… $1,000 in December 2023. I got back my initial $1,000 and that was it. All of the other investments apparently matured at a value of zero. This is despite having been told that I had positive return in the middle of the year here and here. Not to mention that most major asset classes had solid positive returns for 2023.

Save did put my initial amount in an FDIC-insured bank account and just kept it there – nice and safe – doing absolutely… nothing. No interest was earned. Each month, I got a bank statement and a brokerage statement. Here is a screenshot of my final bank statement showing $1,000 being sent back to me at the end of December 2023, after 12 months.

Below is a screenshot from my Save Brokerage statement, which was indeed held at Apex Clearing (a popular clearing firm for many fintechs, used by Robinhood, etc). Inside, they bought some sort of non-transparent, thinly-traded securities that were classified as corporate bonds. Perhaps someone with more advanced market knowledge can tell me more about these things. Example CUSIPs were 05600HTU9 and 05600H2F1.

Here is a tiny of bit info from FINRA:

The value of this security varied wildly through the year, from zero to $1 and all the way back to apparently zero?

How much of this security did they buy? In my case, it was about $15 worth per $1,000 invested. That’s less than taking the prospective interest from a top-yielding 1-year CD and simply betting the entire amount, even if reduced by a discounted growth rate.

$5,000 exposure referral bonus details. If I viewed this as “wimpy gambling”, why did I open an account? Because I only like to gamble when I think I have an edge, and I thought the odds were pretty good with the referral bonus. The minimum investment is $1,000 for the 1-year term, and $5,000 for the 3- and 5-year terms. However, if you open using a referral link, they will give you additional bonus exposure to the equivalent of $5,000 invested.

For each referral that signs up and deposits the required minimum of $1,000, Save will deposit $5,000 worth of portfolio investments in each party’s (both referrer and referee) Client Account held at Apex. All Referral Bonuses will be invested under a one (1) year maturity term. At the end of the term, the Referral Bonus Investment (i.e., the $5,000) will be returned to Save and each party (referrer and referee) will keep their respective gain from the invested Referral Bonus, minus Save’s fee for management. Save’s management fee is .35%, which is discussed in the Fees section.

I signed up using a referral link myself and deposited $1,000 to qualify for the bonus $5,000 in equivalent balance (total $6,000). I knew I’d get my $1,000 back after a year, plus the interest amount as if I held $6,000 total. I figured, the bonus improves my range of potential outcomes, since 8% of $1,000 is $80 but 8% of $6,000 is $480. It felt like the various sports betting and poker bonuses out there that also tilt the odds in your favor (which I have done to a net profit).

If it was like roulette and I bet on red and it landed on black, I’d be totally fine with it. I still got back my $1,000 and missed out on about $40 of interest based on rates back then. But what irks me, however, is that their website still advertises a high 1-year historical return (screenshot taken 1/14/24). “Truth in Savings” disclosure, indeed.

I don’t mind taking a fair bet and losing, but I don’t like how their bets are not transparent at all, as I still have no idea what the money was invested in. I am also disappointed that they don’t disclose that many of their customers have received zero returns, and instead continue to use theoretically backtested numbers even though they now have real-world returns available to share.

Bottom line. The Save app advertises to folks “higher returns on their savings without the risks of the stock market.” They do appear to keep your principal safe in an FDIC-insured account, but it is unclear to me how they invest the rest. Despite their posted 1-year return numbers, my personal experience was zero return (0.00%) on my 1-year term Market Savings investment that ran from December 2022 to December 2023. I did receive my initial principal back as promised.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.