2021 Berkshire Hathaway Annual Shareholder Meeting Video, Transcript, and Notes

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Here are my notes on the 2021 Berkshire Hathaway Annual Shareholder Meeting (YouTube, transcript). It was nice to see things nearly back to “normal” with Buffett offering up some lessons and going into some side details, while Munger just gets to the point (and says the stuff Buffett probably secretly wants to say but doesn’t due to the potential blowback).

Preshow comments. First up, a good observation by Karen Wallace of Morningstar during the Yahoo Finance Preshow (of the Super Bowl for Capitalist?!):

Buffett and Munger Don’t really like to speculate with their shareholders’ money. The thing about Warren Buffett is that he didn’t strike oil or develop software, inherit a big pile of money. He built his fortune by picking really solid businesses that generate a lot of cash and that he believes will continue to do well. And he takes the cash from that, he reinvests, he holds on for the longterm. He looks for new opportunities. He wants businesses that he can understand, which is a big part of it.

Here are a few more from William Green, author of the book Richer, Wiser, and Happier.

…think about the ways in which most of us mess up as investors. We’re impatient, we try to time the market, we speculate on things that we don’t really understand. We trade in and out. We’re we’re much too emotional. We get caught up in fads and here you have Charlie and Warren basically just avoiding all of those standard stupidities. And it’s as Charlie says, it’s actually easier to avoid being stupid than to be smart. And so I thought that was a wonderful paradox that you have the smartest guy alive just trying to be systematically less stupid.

And so if you look at a period like this, where everyone is saying I can’t believe they have $145 billion in cash, and they’re not doing anything, why don’t they do something? They’re just so blindly indifferent to those cries from the crowd. And Warren just says we’re not paid for activity, we’re paid for being right.

So there’s an-old fashioned sense of honor and decency and transparency and humor that I think is one of the reasons why we’ve all been coming back year after year and why we’re all happy to see Charlie back this year after being absent last year.

Guess what? Buffett and Munger both own their houses mortgage-free, which they have lived in for the last 62 years.

On my left, Charlie Munger, and I met Charlie 62 years ago. He was practicing law in Los Angeles. He was building a house at that time, a few miles from here and 62 years later, he’s still living in the same house. Now that was interesting because I was buying a house just a few months before 62 years ago, and I’m still living in the same house. So you’ve got a couple of fairly peculiar guys just to start with in terms of their love affair with their homes.

Indirect warning about Tesla. Buffett put up a huge list of automotive companies that went bankrupt. Even if you knew very early on that internal-combustion cars would take over the world, it was quite difficult to know ahead of time the best place to invest. Buffett:

So there was a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.

My interpretation: Just because you know that electric vehicles will be huge in the future, doesn’t mean you can pick a big winning EV company (or even that there will be a single big winning EV company).

Why didn’t you buy more during the March 2020 crash bottom? My interpretation: Buffett basically said that they didn’t sell much (just the airlines, which accounted for 1% of all the businesses they own), while they did buy a lot of Berkshire stock via buybacks. They bought Berkshire because they knew BRK was cheap. Everything else, they weren’t as sure. Also, no BRK business took a PPP loan or other government bailout money. Munger adds:

Well, it’s crazy to think anybody’s going to be smart enough to husband money and then just come out on the bottom tick in some crazy crisis and spend it all. Always there’s some person that does that by accident, but that’s too tough a standard. Anybody who expects that of Berkshire Hathaway is out of his mind.

Do you think BRK will do better than the S&P 500 in the future? My interpretation: This question has been asked many times before. Buffett says that index funds are fine, they are what he recommends to others, and what his future widow will own (though still less than 1% of his estate). Upon his death, the rest of Buffett’s shares of BRK (much more valuable) will be donated and sold off gradually over 10+ years, so obviously he still has some faith in it. Munger has no intention of selling. Munger adds:

Well, sure. Well, I personally prefer holding Berkshire to holding the market. So I’m quite comfortable holding Berkshire. I think our businesses are better than the average in the market.

LOL about Munger’s response to the idea of Chevron being evil…

Well, I agree. You can imagine two things. A young man marries into your family, he’s an English professor at, say, Swarthmore, or he works for Chevron. Which would you pick? Sight unseen? I want to admit, I’d take the guy from Chevron. Yeah.

Low interest rates are like reduced gravity.

…it gets back to something fundamental in investments, I mean, interest rates, basically, are to the value of assets, what gravity is to matter, essentially.

[…] I mean, if I could reduce gravity, it’s pull by about 80%, I mean, I’d be in the Tokyo Olympics jumping. And essentially, if interest rates were 10%, valuations are much higher. So you’ve had this incredible change in the valuation of everything that produces money, because the risk-free rate produces, really short enough right now, nothing.

Munger hates Bitcoin.

I think I should say, modestly, that I think the whole damn development is disgusting and contrary to the interests of civilization, and I’ll let leave the criticism to others.

Munger hates SPACs.

I call it fee driven buying. In other words, it’s not buying because it’s a good investment. They’re buying it because the advisor gets a fee, and of course the more that you get, the sillier your civilization is getting, and to some extent, it’s a moral failing too, because the easy money made by things like SPACs and returned derivatives and so on, and so on. You push that to excess, it causes horrible problems with the civilization and reflects no credit on the people who are doing it, and no credit on the regulators and voters that allow it. So I think we have a lot to be ashamed of current conditions.

Munger hates Robinhood, day-trading, and speculating on options.

Well, that is really waving red flag of the bull. I think it’s just God awful that something like that would draw investment from civilized men and decent citizens. It’s deeply wrong. We don’t want to make our money selling things that are bad for people.

Buffett has more cash than ideal, but the prices aren’t right and he will be patient until the prices are right.

We’ve got probably 10 to 15% of our total assets in cash beyond what I would like to have just as a way of protecting the owners and the people that are our partners from ever having us ever getting a pickle. You know, we really run Berkshire and make sure that we don’t want to lose other people’s money who stick with us for years. We can’t help somebody who does and buys it today and sells it tomorrow. But we’ve got a real gene that pushes us in that direction, but we’ve got more than we… We’ve got probably 70 or 80 billion, something like that, maybe that we’d love to put the work, but that’s 10% of our assets, roughly. And we probably won’t get, we won’t get a chance to do it under these conditions, but conditions change very, very, very rapidly sometimes in markets.

Munger on high valuations today leading to lower returns in the future.

…with the, everything boomed up so high and interest rates, so low what’s going to happen is the millennial generation is going to have a hell of a time getting rich compared to our generation. And so the difference between the rich and the poor and the generation that’s rising is going to be a lot less.

On the failure to reform healthcare. My interpretation: When average people don’t directly pay for the service (healthcare), they don’t feel the appropriate pain and thus aren’t motivated to fix things.

My overall observation is one of the biggest skills that Buffett and Munger have is the ability to avoid being swept up in the current trends. They maintain a steady and reasoned mind. They aren’t overly bullish or overly bearish. People have been bugging them about their cash hoard for years, and well, things are too expensive right now, but they know that one day that will change. They still own a lot of businesses and are still net optimists.

If you were to try to copy them (not a recommendation), you might hold 10% more bonds than you held in the past, but still hold onto the rest in stocks. If you were 100% stocks, you might be 90% stocks and 10% bonds. If you were 80%/20%, you might be 70% stocks and 30% bonds. You’re still net optimistic about the future and exposed to more upside, but you realize valuations are high and there may be bargains if there is a crash. This assumes that you have the right personality to buy things during a crisis, however.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Savings I Bonds May 2021 Interest Rate: 3.54% Inflation Rate

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May 2021 predictions confirmed. The fixed rate will indeed be 0% for I bonds issued from May 1, 2021 through October 31st, 2021. The variable inflation-indexed rate for this 6-month period will be 3.54% (also as predicted). See you again in mid-October for the next early prediction for November 2021. Don’t forget that the purchase limits are based on calendar year, if you wish to max for 2021. (I’m going to max out by the end of May.)

Original post:

sb_poster

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2021 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2021 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a May 2021 purchase.

New inflation rate prediction. September 2020 CPI-U was 260.280. March 2021 CPI-U was 264.877, for a semi-annual increase of 1.77%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 3.54%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be up to 3.60%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2021. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0%. You will be guaranteed a total interest rate of 0.00 + 1.68 = 1.68% for the next 6 months. For the 6 months after that, the total rate will be 0.00 + 3.54 = 3.54%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2021 and sell on April 1, 2022, you’ll earn a ~1.88% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you theoretically buy on April 30th, 2021 and sell on July 1, 2022, you’ll earn a ~2.24% annualized return for an 15-month holding period. Comparing with the best interest rates as of April 2021, you can see that this is higher than a current top savings account rate or 12-month CD.

Buying in May 2021. If you buy in May 2021, you will get 3.54% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS, and is thus very, very, very likely to be 0%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? The question is, would you rather get 1.68% for six months and then 3.54% for six months guaranteed, or get 3.54% for six months plus an unknown value? If you think the next inflation adjust will be greater than 1.68%, then you may choose to buy in May. Either way, it seems worthwhile to use up the purchase limit for 2021 as the total rates will at least be higher than other cash equivalents. You are also getting a much better “deal” than with TIPS, the fixed rate is currently negative with short-term TIPS.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. Right now, they promise to pay out a higher fixed rate above inflation than TIPS. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Be Guaranteed to Own the World’s Most Valuable Companies in 2051

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The 2021 Berkshire Hathaway Annual Shareholder Meeting was on May 1st, 2022 and is now available as a recorded video on Yahoo Finance and a handy Rev.com transcript. I expect the podcast version to be updated shortly. I recommend listening or reading on your own, as I always find valuable tidbits outside the media highlights.

Buffett started out with the 2021 version of his annual advice for the average investor that doesn’t read 10-K SEC filings, shareholder annual reports, and multiple newspapers in their entirety every day: buy index funds. Buffett created a few slides for those “new entrants” who might think stock market investing means trading 25 times a day on Robinhood.

Here are the 20 most valuable companies in the world as of March 31st, 2021. The list includes 13 from the United States, three from China, and one each from Saudi Arabia, Taiwan, South Korea, and France.

He then asks “How many of these companies do you think will be on this same Top 20 list in 30 years? (2051)”

8?

5?

Once you have the answer in mind, you can consider this list of the 20 most valuable companies in the world from ~30 years ago (1989).

There is zero overlap in the two lists in regards to actual companies. Some names might be familiar, but not a single company stayed in the top 20. The 1989 list includes 13 from Japan, 6 from the United States, and one from the Netherlands.

In 1989, the most valuable company was worth $100 billion. (That company, the Industrial Bank of Japan, later merged with another business and that new company is only worth $37 billion in 2021.) Meanwhile, the most valuable company of 2021 is worth over $2,000 billion, a 20X increase.

If you are under the age of 50, you are a time billionaire. Your time horizon is a billion seconds (30 years) or longer. Many things will change over that period. Hopefully you will enjoy a happy, fulfilling life. But if you own a low-cost, market-cap weighted index fund, you will be guaranteed to own the world’s largest companies in 2051. As the late Jack Bogle told us: “Don’t look for the needle in the haystack. Just buy the haystack.” He might have added “…and get on with your life!”.

This comparison also shows why I remain diversified internationally, even though it hasn’t paid off recently. Does anyone really know that the future holds in regards to world geopolitics? It’s possible the US companies will continue to outperform for another 30 years. I hope so, and if that happens then I’ll hold a large majority of US stocks in the future. It will work itself out.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Historical Asset Class Correlations: Which Have Been the Best Portfolio Diversifiers?

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When talking about constructing an investment portfolio, you’ll often hear about diversification and buying low-correlation or non-correlated assets.

  • A positive correlation means that the assets tended to move in the same direction. A value of 1 is perfect positive correlation.
  • A negative correlation means that they tended to move in opposite directions. A value of -1 is perfect negative correlation.
  • A zero correlation means that they had no relationship.

Morningstar recently released its 2021 Diversification Landscape Report (free download with e-mail) which includes a lot of great information about the correlations between key asset classes from 2001-2020, including the March 2020 COVID-related market crash. I try not to look too finely at historical numbers, but noticing the overall historical trends can be helpful.

The lower the correlation between asset classes (the less they move in the same direction), the greater the reduction in volatility you get by combining assets. As long as you combine asset classes with correlations below 1, you get some degree of volatility reduction. This M* chart from the paper helps you visualize this:

This handy M* table shows how the 5-year correlations between the total US stock market and other major asset classes have changed over the four separate periods of 2001-2005, 2006-2010, 2011-2015, and 2016-2020:

Some quick takeaways:

  • The best portfolio diversifiers for US stocks has consistently been US Treasury bonds. Short-term, medium-term, long-term Treasuries all have consistently negative correlations to US stocks. (There is some problem with the shading in the chart that doesn’t quite match the numbers.)
  • International developed country stocks, Emerging Markets stocks, and US REITs have high correlations with US stocks (which is somewhat expected), but the correlation is still below 1 (roughly 0.80 or so) such that it still offers a little diversification benefit over time.
  • High-yield “junk” bonds are highly-correlated with US stocks. They are just as highly-correlated as international and emerging market stocks, so watch out if you are chasing higher yield with riskier bonds.
  • Gold has been a pretty good and consistent diversifier as well, but only on par with cash (T-bills) not as good as US Treasuries. You just need to believe that the long-term return of gold is high enough to warrant inclusion. These days, gold actually looks better to me than in the past because I figure it will match inflation, and that’s actually better than most cash and bonds right now. Also see: Gold as a Hedge Against Bonds During Low Interest Rates
My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Potential Risks of High Interest Stablecoin Savings Accounts

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As an extension of High-Yield Crypto Accounts: 6% Interest in Bitcoin or 9% Interest on Stablecoin, I’m trying to better understand the potential scenarios that might cause loss of principal. Even if you’re tired of crypto talk, you should be aware that newer “savings account” apps exist that advertise high interest rates to mainstream customers while playing down their lack of FDIC-insurance and reliance on cryptocurrency markets.

Traditional bank lender model. You deposit your cash into a bank. The bank lends that money out for things like business loans and mortgages, charging them interest. The bank passes on some of the interest to you, and keep the rest as profits for itself. However, if the bank makes enough bad loans, it may not be able to pay the interest or even return all of your deposits. Even so, FDIC insurance will cover deposits up to $250,000 per titled account. This means we don’t have the burden of independently evaluating the quality of every bank. This safety net is critical.

Stablecoin lender model. Traditional banks will not loan out money to people want to put up Bitcoin as collateral. However, there is heavy demand by people with bitcoin/crypto to access cash without actually selling their bitcoin/crypto. Since the big banks are not competing and it’s a risky business, the interest rates charged are high. They have to pay you 8% interest because it’s the only way they can come up with enough cash to fund these loans. If they could get it cheaper elsewhere, don’t you think they would?

For example, BlockFi requires you to put up $200 of BTC for every $100 that you borrow (50% loan-to-value). The idea is that if they don’t pay back the loan on time, BlockFi can just sell the BTC. BlockFi may also sell the BTC anyway if the value drops enough and you don’t post more collateral:

If the value of your collateral significantly decreases, a crypto margin call may occur. Crypto margin calls are calculated based on the LTV (loan-to-value) rate outlined in your loan agreement. A margin call can happen when the value of your collateral drops, increasing the LTV of your loan.

In the event of a margin call, you will have to add more collateral to your account to maintain a healthy LTV ratio. The first margin call occurs at a 70% LTV. At this point, you have 72 hours to take action by posting additional collateral or paying down the loan balance. We will keep you informed if your LTV starts to near the 70% mark so you can take action preemptively.

If your LTV reaches the 80% mark, BlockFi will automatically sell a portion of your crypto collateral to bring your LTV back to a 70% LTV.

Loss scenario: Rapid BTC price drop. BTC prices might drop so steeply (more than 50%) and suddenly (no market liquidity) that BlockFi is unable to liquidate the BTC collateral in time. If they recover less than the original loan amount, and the total losses across their loans are great enough, and they don’t get other backup funding, they may not have the funds to pay back your cash deposits. The price of 1 BTC is $50,000 today, but less than a year ago it was under $10,000, so such a drop is not inconceivable (source):

Loss scenario: Stablecoin price dropping below $1. Stablecoins are supposed to be backed by an equal amount of real money held in a trust account. Right now, the trading price of 1 USDC = $1.00. USDC is issued by Coinbase (now a large publicly-traded company) and is audited monthly by well-known US auditor Grant Thornton LLP that their dollar balances are at least equal to the number of USDC outstanding. However, in the past Tether (USDT), another stablecoin, has had credibility issues regarding its reserves and its price has dropped to as low as $0.88 in the past. Tether was accused of quietly using its cash reserves to help shore up its other struggling businesses. For any stablecoin, if there is even a perceived risk that it is not fully backed by actual US dollars, the price of a stablecoin may drop below the $1.00 peg, which means a loss of principal if you have to sell/withdraw at that price.

Loss scenario: Hacking, accidental loss, and/or internal fraud. There are has been a long history of hacks that have resulted in the theft of many millions of dollars in crypto. Any major loss could bankrupt a company, with obviously some being more vulnerable than others. Coincheck was hacked for $500 million. Per CNBC, the “Canadian crypto exchange QuadrigaCX went bankrupt after its CEO died in 2019, resulting in millions of dollars’ worth of digital assets being trapped in a digital wallet.” This type of thing is why traditional banks don’t want to deal with holding actual cryptocurrency keys. You could view BlockFi’s role as being paid to take on the risk of hacked wallets, lost passwords, and liquidity crunches. As a stablecoin depositor, you are also indirectly making your interest by taking on these risks.

Loss scenario: Drop in interest spreads. This NotBoring longread by Packy McCormick explains in detail why hedge funds are using BlockFi to leverage up their Bitcoin futures arbitrages. This results in a huge demand by these large institutions and a willingness to pay high interest rates. However, as times goes on, these arbitrages will eventually dry up. In the best-case scenario, this will just result in a gradual lowering of interest rates. In a worst-case scenario, a rapid loss of revenue could lead to business failure.

Loss scenario: Sudden government regulation. While part of the allure of cryptocurrencies is the lack of direct government control, the regulation of cryptocurrencies still matters greatly. Just last week, Turkey banned the use of cryptocurrencies for purchasing goods and services. Immediately afterward, Turkish crypto exchange Thodex shut down and $2 billion of investor funds are allegedly missing. Regulation could directly impact these businesses by banning their operations, or indirectly impact them by affecting the price of Bitcoin and other cryptocurrencies.

Due to the lack of FDIC insurance as a backstop, where you keep your stablecoin deposits matters (if you decide to play the game). You’ll want to find a place with a history of strong risk management, security protocols, good financial base, and access to additional capital. For example, BlockFi doesn’t hold private keys, uses Gemini Trust as custodian (one of the most reputable, 95% in cold storage, and regulated by New York state), and most recently raised $350 million at a $3 billion valuation from major venture capital firms. I’m not saying they are 100% safe, but I did look into it pretty deeply considering the small amount of Bitcoin that I hold.

None of these things are a concern if you put your cash in an FDIC-insured bank account. You don’t have to worry about how your bank deals with bad loans, hacking attempts, competitors, or government regulations. This is why I am not moving my cash reserves over to a stablecoin interest account. Cash is for safety, liquidity, sleeping well, and for buying assets on the cheap after any crashes.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Big List of Free Stocks For New Commission-Free Brokerage Apps (Updated 2021)

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Updated offers. TradeUP 5 free stocks. I have the strange hobby of trying out new fintech apps while also collecting their sign-up incentives. Here are several different brokerage apps that offer some variation of free stock trades, modern user interface, real-time quotes, and social sharing. Many are structured like a free lottery ticket with a minimum payout – the odds are that you’ll get a stock valued on the lower end of the ranges mentioned, but I have gotten a few big shares like AAPL before the recent split. They all require a referral link, which means I can get some free stocks as well. A couple are offering 2X to 4X their usual bonuses right now.

TradeUP 5 Free Stocks Offer (Open in mobile browser)

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MooMoo 4 Free Stocks Offer

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  • I have done this deal and gotten my free stocks as promised without issue.

WeBull 2 Free Stocks Offer

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  • WeBull will also reimburse you for a transfer fee up to $100 if you transfer at least $2,000+ value to WeBull from another brokerage.
  • WeBull offers free stock trades, free options trades, free crypto trades, and a full-featured brokerage account. This is a limited-time offer, the standard offer is only one free share of stock.
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Firstrade 2 Free Stocks Offer

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  • Firstrade actually a long-established traditional discount brokerage that offers free stock trades, free options, and free mutual fund trades. There have been bigger past bonuses with $2,000 minimum deposits, but this one requires nothing but a new approved account.
  • I’ve had a Firstrade account for several years, got a bonus way back when as promised without issue. See my Firstrade review.

M1 Finance $30 Offer (Open in mobile browser)

  • Open an M1 Finance account and get $30 after you use a referral link and make an initial deposit of $100 for taxable accounts and $500 for IRAs within 30 days of sign-up, and not withdraw the initial deposit within 30 days. If you are transferring over a sizable portfolio from another brokerage, you can earn much more money with a transfer bonus (see main post). This is a limited-time offer, the standard offer is only $10.
  • M1 is different in that it actually promotes a long-term buy-and-hold portfolio and it automatically invests and rebalances your contributions according to your chose “pie”. See my M1 Finance post for more details.
  • I opened my account with no bonus, just wanted to try out their software.

SoFi Invest Free $50 Stock Bit Offer

  • Open a SoFi Invest account and deposit at least $5,000 to get $50 worth of your favorite stock. Choose from over 100 popular stocks like Amazon, Tesla, Disney, Apple, and Nike.
  • SoFi offers free stock trades, free fractional trades, and free crypto trades.
  • I have done this deal and gotten my free share of stock as promised without issue.

Public $15 Free Stock Offer (Open in mobile browser)

  • Open a Public account via referral download link (open in mobile) and get a free stock slice worth $15. No deposit required.
  • Public app offers free fractional stock trades, in additional to the ability to share your portfolio.
  • I have done this deal and gotten my free share of stock as promised without issue. Be sure to open the link in a mobile web browser, which will redirect you to the app download.

Robinhood Free Stock Offer

  • Open a Robinhood account and link a bank account to get a free share of stock (up to $200 value). No deposit required.
  • Robinhood app offers free stock trades, free fractional trades, and free crypto trades.
  • I have done this deal and gotten my free share of stock as promised without issue.

Voyager Free $25 Bitcoin Offer (open link in mobile web browser)

  • Open a Voyager account and trade $100 of crypto to get $25 in Bitcoin free. Use link above and/or promo code JONA3F at sign-up.
  • Voyager app offers free crypto trades and allows you to earn interest on cryptocurrencies, including stablecoin.
  • I have done this deal and gotten my free BTC as promised without issue.
My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

M1 Finance Review: Free DIY Robo-Advisor ($30 Referral Bonus, Up to $4,000 Transfer Bonus)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Updated. My favorite option in the now-crowded “robo-advisor” category is technically not a registered advisor at all, it is M1 Finance. Here’s a quick rundown of what makes them different:

  • Fully customizable. You pick your own target asset allocation “pie”. (You can add ETFs or individual stocks.) You can simply copy one of the many model portfolios out there, or customize it as you like. You have full control! M1 handles the boring stuff, like rebalancing or dividing a $100 contribution across 8 different ETFs. Here is my pie which I named the My Money Blog Portfolio.
  • No commissions. Free stock/ETF trades with a low $100 minimum account size for taxable accounts and a $500 minimum for retirement accounts.
  • 0.00% management fee! Most robo-advisors charge an annual management fee of 0.25% to 0.50% of assets (or force you to own something bad, like artificially low-interest cash).
  • Free dynamic rebalancing. M1 will rebalance your portfolio back to the target allocation for you automatically (for free) whenever you chose. All new deposits (and withdrawals) will be invested (or sold) dynamically to bring your portfolio back toward your target asset allocation. You don’t need to do any math or maintain any spreadsheets. You can also manually rebalance on-demand.
  • Fractional shares (dollar-based). For example, you can just set it to automatically invest $100 a month, and your full amount will be spread across multiple ETFs. Dollar-based transactions were one of the advantages of buying a mutual fund, but fractional shares solve this problem. ETFs are also usually more tax-efficient.
  • Real brokerage account that you can move out. Some roboadvisors hold special, proprietary funds that you have to sell if you ever leave, possibly creating a big tax bill. M1 is really just a regular brokerage account, so you can move your ETFs and stock shares out to another broker whenever you want.

M1 Finance checks off nearly all the boxes of my brokerage wish list. They do all the managing for me, but according to my rules. But since I can choose the exact ETFs that they purchase, if I decide to stop their service down the line, I just end up with a brokerage account filled with ETFs that I can easily move elsewhere. I suppose the only thing they could add would be to have the high availability of customer service of a huge company like Fidelity or Schwab. Otherwise, I really like their feature set and I have been putting my recent annual IRA contributions into M1.

How do they make money? They have a variety of income streams, most of which are optional:

1) Interest on idle cash (can be minimized as you can auto-invest all idle cash in the investment account)
2) M1 Borrow (margin loan interest)
3) M1 Spending (debit card generates fees for them)
4) Payment for order flow (same as Robinhood and TD Ameritrade)
5) M1 Plus (premium $125 a year subscription that gets you higher interest rates and debit card cash back).

$30 referral bonus. There is currently a $30 referral bonus only available if you open with a M1 Finance referral link (that’s mine), make an initial deposit of $100 for taxable accounts and $500 for IRAs within 30 days of sign-up, and not withdraw the initial deposit within 30 days. This is a limited-time offer, the standard offer is only $10.

M1 transfer bonus. By transferring over your portfolio from another brokerage, you can earn additional money with their transfer bonus. Transfer an outside brokerage account or IRA to M1 and earn up to $4,000. After opening an M1 account, simply upload your outside brokerage statement and they will do the transfer work for you.

Bottom line. M1 Finance is a new brokerage account that acts like a free, customizable robo-advisor with automatic rebalancing into a target portfolio. I deposited part of my annual Roth IRA contribution with them.

Disclosure: I am now an affiliate of M1 Finance, and may be compensated if you click through my link and open a new account.

Also see: Big List of Free Stocks For New Commission-Free Brokerage Apps

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Fidelity Spire App $100 Bonus, Fidelity Go Roboadvisor Warning

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Updated, including new bonus and tax warning. Fidelity Spire is Fidelity’s new mobile app, which adds fintech-y features and is separate from their main Fidelity app. You can link your external accounts, track balances, and set financial goals. (Fidelity acquired fintech startup eMoney in 2015, and is using that technology for account aggregation.) You can also link up “real” Fidelity accounts like their brokerage accounts and perform commission-free trades within the app.

New $100 Fidelity account bonus. If you open a new, eligible Fidelity account via the Spire app or fidelity.com/spire and maintain an automatic monthly deposit of $25+ for 6 months, you can get a $100 bonus. Hat tip to DoC.

  • You must open via the Fidelitiy Spire app or specific link above, not anywhere else.
  • Eligible accounts include The Fidelity Account®, Fidelity® Cash Management account, Fidelity Roth IRA, or a Fidelity traditional IRA.
  • You must establish a monthly Fidelity Automatic Account Builder (FAAB) plan, an automated deposit feature, on your newly established account for at least $25. First deposit must be within 45 days of opening, and must come from an external, non-Fidelity source. The automatic monthly deposit must remain in effect for at least 6 months (or 6 monthly deposits of at least $25).
  • Bonus limited to $100 per individual in 2021.

Fidelity doesn’t offer bonuses very often, so even though it is not that big, it’s still something if you were planning on opening an account anyway.

While not eligible for the bonus, they are also offering their new Fidelity Go robo-advisor service that automatically invests for you, with no minimum to start and the following fee structure:

  • $10,000 or less: No advisory fee
  • $10,000 to $49,999: Flat $3 a month
  • $50,000 or more: 0.35% annually

The flat fee structure for assets under $50,000 is interesting. At $10,000 in assets, $36 dollars a year = 0.36% annually. At $49,999 in assets, $36 dollars a year = 0.07% annually.

In addition, the underlying mutual funds also offer zero expense ratios. Fidelity actually created a new line of mutual funds called Fidelity Flex Funds for their managed accounts, similar to their other passive and actively-managed mutual funds but with zero expense ratios. For example, there is a Fidelity Flex 500 Fund and a Fidelity Flex International Index fund. However, this special also comes with a drawback.

As with other roboadvisors, the portfolio they choose will be based on you filling out a relatively short online questionnaire. If you aren’t sure about the resulting asset allocation, I recommend going back and change your answers to see the effects. With Fidelity Go, you do not gain access to financial advice from a human advisor. However, you will still gain access to their phone/live chat customer service, which has traditionally been rated highly.

Warning: If you decide to move your money out of Fidelity Go in a taxable account, they will force you to sell all your proprietary Flex fund shares and potentially incur capital gains taxes. If you just owned regular ETFs or mutual funds, you should be able to export the shares “in-kind” without selling and maintain your cost basis. I know you can do this with Betterment and Wealthfront. Depending on how much your account grew, you could consider this a significant “exit fee”.

This is why I still prefer to DIY and construct a portfolio using “high-quality interchangeable parts” that I can keep forever. You can still use Fidelity as I think they are reputable firm with overall good customer service, but instead just buy something like Vanguard Total US Market ETF (VTI) or iShares Core Total US (ITOT).

With free trades now available nearly everywhere, the primary “cost” is the hassle of doing the trades yourself. This is why I recommend also looking at M1 Finance, as they will maintain your target asset allocation for free while still allowing your the ability to port out your investments at any time.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

MMB Portfolio Update April 2021: Dividend and Interest Income

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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While my April 2021 portfolio asset allocation is designed for total return, I also track the income produced. Stock dividends are the portion of profits that businesses have decided they don’t need to reinvest into their business. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation. Here is the historical growth of the S&P 500 absolute dividend (source):

This is true despite the fact that the S&P 500 yield percentage are again near historical lows, along with interest rates (source):

I track the “TTM” or “12-Month Yield” from Morningstar, which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period. I prefer this measure because it is based on historical distributions and not a forecast. Below is a rough approximation of my portfolio (2/3rd stocks and 1/3rd bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 4/11/21) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)
25% 1.37% 0.36%
US Small Value
Vanguard Small-Cap Value ETF (VBR)
5% 1.59% 0.08%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX)
25% 2.13% 0.53%
Emerging Markets
Vanguard Emerging Markets ETF (VWO)
5% 1.86% 0.09%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX)
6% 3.50% 0.24%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Treasury ETF (VGIT)
17% 1.43% 0.26%
Inflation-Linked Treasury Bonds
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
17% 1.37% 0.20%
Totals 100% 1.73%

 

Trailing 12-month yield history. Here is a chart showing how this 12-month trailing income rate has varied since I started tracking it in 2014.

Portfolio value reality check. One of the things I like about using this number is that when stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

Here’s a related quote from Jack Bogle (source):

The true investor… will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

This quarter’s trailing income yield of 1.73% is the lowest ever since 2014. This is nearly a full 1% lower than what it was in late 2018. At the same time, my portfolio value is also bigger than ever. If you retired back in say, 2015, your absolute income from dividends and interest is much higher in 2021, even though your yield percentage is lower. You had a good run right after retirement.

However, this is not necessarily good news if you are retiring today. There are countless articles debating this topic, but I historically support a 3% withdrawal rate as a reasonable target for planning purposes if you want to retire young (before age 50) and a 4% withdrawal rate as a reasonable target if retiring at a more traditional age (closer to 65). However, nobody is guaranteeing these numbers and flexibility may be required if there is a bad stock run right after retirement. The “good ole’ days” included the ability to put your money in a CD or high-quality bond and still keep up with inflation…

If you are not close to retirement, there is not much use worrying about it now. Your time is better spent focusing on earning potential via better career moves, investing in your skillset, and/or looking for entrepreneurial opportunities where you own equity in a business asset.

How we handle this income. Our dividends and interest income are not automatically reinvested. I treat this money as part of our “paycheck”. Then, as with a real paycheck, we can choose to either spend it or invest it again. Even if still working, you could use this money to cut back working hours, pursue new interests, start a new business, travel, perform charity or volunteer work, and so on.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

MMB Portfolio Update April 2021: Asset Allocation & Performance

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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Here’s an update on my current investment holdings as of April 2021, including our 401k/403b/IRAs, taxable brokerage accounts, and savings bonds but excluding our house, cash reserves, and a small portfolio of self-directed investments. Following the concept of skin in the game, these are my real-world holdings and what I’ll be using to create income to fund our household expenses. We have no pensions or other sources of income.

Actual Asset Allocation and Holdings
I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (free, my review) automatically logs into my different accounts, adds up my various balances, tracks my performance, and calculates my overall asset allocation. Once a quarter, I also update my manual Google Spreadsheet (free, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation.

Here are updated performance and asset allocation charts, per the “Allocation” and “Holdings” tabs of my Personal Capital account, respectively:

Stock Holdings
Vanguard Total Stock Market (VTI, VTSAX)
Vanguard Total International Stock Market (VXUS, VTIAX)
Vanguard Small Value (VBR)
Vanguard Emerging Markets (VWO)
Vanguard REIT Index (VNQ, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury (VFITX, VFIUX)
Vanguard Inflation-Protected Securities (VIPSX, VAIPX)
Fidelity Inflation-Protected Bond Index (FIPDX)
iShares Barclays TIPS Bond (TIP)
Individual TIPS bonds
U.S. Savings Bonds (Series I)

Target Asset Allocation. I do not spend a lot of time backtesting various model portfolios, as I don’t think picking through the details of the recent past will necessarily create superior future returns. Usually, whatever is popular in the moment just happens to hold the asset class that has been the hottest recently as well.

Mainly, I try to own broad, low-cost exposure to asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I make a small bet that US Small Value and Emerging Markets will have higher future long-term returns (along with some higher volatility) than the more large and broad indexes, although I could be wrong.

While you could argue for various other asset classes, I believe that it is important to imagine an asset class doing poorly for a long time, with bad news constantly surrounding it, and only hold the ones where you still think you can maintain faith through those fearful times. I simply don’t have strong faith in the long-term results of commodities, gold, or bitcoin. (In the interest of full disclosure, I do own tiny bits of gold and BTC amongst my self-directed investments.)

My US/international ratio floats with the total world market cap breakdown, currently at ~57% US and 43% ex-US. I’m fine with a slight home bias (owning more US stocks than the overall world market cap), but I want to avoid having an international bias.

Stocks Breakdown

  • 43% US Total Market
  • 7% US Small-Cap Value
  • 33% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 33% High-Quality Nominal bonds, US Treasury or FDIC-insured
  • 33% High-Quality Municipal Bonds
  • 33% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio of 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and occasionally rebalance. I will use the dividends and interest to rebalance whenever possible in order to avoid taxable gains. I plan to only manually rebalance past that if the stock/bond ratio is still off by more than 5% (i.e. less than 62% stocks, greater than 72% stocks). With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Holdings commentary. Overall, all these numbers keep going up since the March 2020 drop, but I remain anxious about the future. There seems to be lots of money and optimism sloshing around, but there are also so many people still struggling. All I can do is listen to the late Jack Bogle and “stay the course”. I remain optimistic that capitalism, human ingenuity, human resilience, and our system of laws will continue to improve things over time.

In specific terms, I seem to be a little overweight REITs and underweight International Stocks. I may rebalance within tax-deferred accounts if this continues.

I have also been following with interest the new ETFs from both Dimensional Fund Advisors and Avantis (started by former DFA employees). Right now, I don’t need to rebalance out of anything, but in the future I may purchase the DFA Emerging Core Equity Market ETF (DFAE) and Avantis U.S. Small Cap Value ETF (AVUV) instead of my current holdings.

Performance numbers. According to Personal Capital, my portfolio is already up +5.6% since the beginning of 2021. Wow. I rolled my own benchmark for my portfolio using 50% Vanguard LifeStrategy Growth Fund and 50% Vanguard LifeStrategy Moderate Growth Fund – one is 60/40 and the other is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of +5.2% for 2020 YTD as of 4/9/2021.

The goal of this portfolio is to create sustainable income that keeps up with inflation to cover our household expenses. I’ll share about more about the income aspect in a separate post.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Retirement Savings Rule of Thumb: What Multiple of Income Saved By Age 50?

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The WSJ article How to Know if Your Retirement Savings Are on Track tries to answer what is likely a very common question:

My wife and I are in our early 50s. We hope to retire in about a dozen years, and we are trying to figure out if our nest egg is on track. How large should our savings be at our age?

Obviously, everyone’s situation is different, but the WSJ appears to have collected the rules of thumb from a few big financial firms – including Fidelity, T. Rowe Price, and JP Morgan – and averaged them into this chart:

The chart indicates that a couple with a gross household income of $75,000 should target a nest egg of $412,500 at age 55, with that number increasing to $675,000 by age 65. The multiples get bigger with a higher income, I am assuming due to the resulting higher tax rates. It is also unclear if these numbers make any assumptions about Social Security income, but it seems like it does as the numbers appear too low otherwise. I am guessing that they simply assume that the average household spends at least 80% of their income, and bases the Social Security and taxes on that.

Using gross income ignores your actual expenses, but I acknowledge that this is a rough “rule of thumb” and many more people know their gross income than their annual expenses. An alternative rule of thumb is the “4% rule”, which says that you should expect to be able to safely withdraw roughly 4% of your balanced stock/bond portfolio per year (for 30 years) without running out of money. This equates to a rule of saving 25 times the income you want produced. You may already have other income sources. Need $30,000 of annual income above Social Security and a small pension? Then 25 times $30,000 = $750,000 at retirement age.

Perhaps just as importantly, the target moving from 5.5X to 9X income after only 10 years definitely shows (and relies upon) the power of late-stage compounding when a nest egg is already growing. If you manage to get to 5.5X at age 55, your portfolio returns may already be significantly greater than your additional savings in any given year. You have momentum on your side.

This brings me back to my overall reaction to these types of charts. If you are starting with a modest amount, these are huge, scary numbers. They can be so big, you think, why even bother trying? For most people, the key to retirement savings is setting up a system of regular savings and investment, and then letting it run with minimum interruption for 20, 30, 40 years. Focus on setting up the auto-save. Once you get to 1X income, and all the rest will suddenly seem possible.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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 – April 2021

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Here’s my monthly roundup of the best interest rates on cash as of April 2021, roughly sorted from shortest to longest maturities. There are many lesser-known opportunities to improve your yield while keeping your principal “safe” (FDIC-insured or equivalent). Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 4/5/2021.

Fintech accounts
Available only to individual investors, fintech accounts oftentimes pay higher-than-market rates in order to achieve high short-term growth (often using venture capital). I define “fintech” as a software layer on top of a different bank’s FDIC insurance. Although I do use some of these after doing my own due diligence, read about the Beam app for potential pitfalls and best practices.

  • 3% APY on up to $100,000. The top rate is 3% APY for April through June 2021, and they have not indicated any upcoming rate drop. HM Bradley requires a recurring direct deposit every month and a savings rate of at least 20%. See my HM Bradley review.
  • 3% APY on 10% of direct deposits + 1% APY on $5,000. One Finance lets you earn 3% APY on “auto-save” deposits (up to 10% of your direct deposit, up to $1,000 per month). Separately, they also pay 1% APY on up to another $25,000 with direct deposit. New $50 bonus via referral. See my One Finance review.
  • 3% APY on up to $15,000. Porte requires a one-time direct deposit of $1,000+ to open a savings account. $50 bonus via referral. See my Porte review.
  • 2.15% APY on up to $5k/$30k. Limited-time offer of free membership to their higher balance tier for 6 months with direct deposit. See my OnJuno review.

High-yield savings accounts
While the huge megabanks pay essentially no interest, it’s easy to open a new “piggy-back” savings account and simply move some funds over from 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.

  • 1.25% APY on up to $250k. ZYNLO is a division of PeoplesBank with its own FDIC certificate. It also offers 100% roundup matching on debit card purchases if you maintain a $3,000 balance. See my ZYNLO review.
  • T-Mobile Money is still at 1.00% APY with no minimum balance requirements. The main focus is on the 4% APY on your first $3,000 of balances as a qualifying T-mobile customer plus other hoops, but the lesser-known perk is the 1% APY for everyone. Thanks to the readers who helped me understand this. There are several other established high-yield savings accounts at closer to 0.50% APY.

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 (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. Marcus has a 7-month No Penalty CD at 0.45% APY with a $500 minimum deposit. AARP members can get an 8-month CD at 0.55% APY. Ally Bank has a 11-month No Penalty CD at 0.50% APY for all balance tiers. CIT Bank has a 11-month No Penalty CD at 0.30% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Lafayette Federal Credit Union has a 12-month CD at 0.80% APY ($500 min). Early withdrawal penalty is 6 months of interest. Anyone can join this credit union via partner organization ($10 one-time fee).

Money market mutual funds + Ultra-short bond ETFs
Normally, I would say to watch out for brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). However, money market fund rates are very low across the board right now. Ultra-short bond funds are another possible alternative, but they are NOT FDIC-insured and may experience short-term losses in extreme cases. I personally don’t think the risk is worth the tiny yield at this time.

  • The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.01%. Vanguard Cash Reserves Federal Money Market Fund (formerly Prime Money Market) currently pays 0.01% SEC yield.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 0.42% SEC yield ($3,000 min) and 0.52% SEC Yield ($50,000 min). The average duration is ~1 year, so your principal may vary a little bit.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 0.31% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 0.45% 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. 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. Right now, this section isn’t very interesting as T-Bills are yielding close to zero!

  • 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 4/5/2021, a new 4-week T-Bill had the equivalent of 0.03% annualized interest and a 52-week T-Bill had the equivalent of 0.06% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a -0.01% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -0.10% (!) SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

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 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 2020 and April 2021 will earn a 1.68% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2021, 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.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore, as I feel the work required and risk of messing up exceeds any small potential benefit.

  • Mango Money pays 6% APY on up to $2,500, if you manage to jump through several hoops. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

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 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.

  • The Bank of Denver pays 2.00% APY on up to $25,000 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. The rate recently dropped. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $50k. Thanks to reader Bill for the updated info.
  • Devon Bank has a Kasasa Checking paying 2.50% APY on up to $10,000, plus a Kasasa savings account paying 2.50% APY on up to $10,000 (and 0.85% APY on up to $50,000). You’ll need at least 12 debit transactions of $3+ and other requirements every month. The rate recently dropped.
  • Presidential Bank pays 2.25% APY on balances up to $25,000, if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Evansville Teachers Federal Credit Union pays 3.30% APY on up to $20,000. You’ll need at least 15 debit transactions and other requirements every month.
  • Lake Michigan Credit Union pays 3.00% APY on up to $15,000. You’ll need at least 10 debit transactions and other requirements every month.
  • 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.

  • NASA Federal Credit Union has a special 49-month Share Certificate at 1.50% APY ($10,000 min). Early withdrawal penalty is 1 year of interest. Anyone can join this credit union by joining the National Space Society (free). Note that NASA FCU may perform a hard credit check as part of new member application.
  • Lafayette Federal Credit Union has a 5-year CD at 1.25% APY ($500 min). Early withdrawal penalty is 6 months 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 see a 5-year CD at 0.90% APY vs. 0.98% APY for a 5-year Treasury. Be wary of higher rates from callable CDs listed by Fidelity.

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 CD at 1.80% APY vs. 1.70% APY for a 10-year Treasury. Watch out for higher rates from callable CDs from Fidelity.
  • 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 which is quite low (currently 0.10%). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. Purchase limit is $10,000 each calendar year for each Social Security Number. As of 4/5/2021, the 20-year Treasury Bond rate was 2.28%.

All rates were checked as of 4/5/2021.

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