Fidelity Youth Brokerage Account: Free $50 for Teens (13-17yo, No Deposit Required)

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Fidelity Investments has a new $50 promotion for their Youth account for teens (aged 13-17). Parents must have their own open Fidelity account before opening a Youth account. After you open a new Youth Account and your teen downloads the Fidelity Mobile® App and activates the new account, your teen will receive a $50 deposit as a reward. No deposit required, no monthly fees, no minimum balance required.

Details from their FAQ:

We are hoping to help your teen jumpstart their financial journey by helping them learn about money. Using our mobile app, they can access the Youth Learning Center, which is a resource created specifically to help teens learn the basics about saving, spending, and investing.

Parent/guardian must have their own Fidelity brokerage account to open an account for their teen.
Parent/guardian must initiate the application process and once completed, the teen will receive instructions on how to download the Fidelity Mobile® App and activate their account.
There are no funding requirements to receive this reward.
No further investment or trading is required to qualify for the offer.

The reward will be deposited directly to the eligible account within 10 calendar days after the teen has downloaded the Fidelity Mobile® App and activated their account (which entails creating a username/password, and logging into the mobile app and accepting account agreements). Amounts deposited by Fidelity in the form of the reward will be initially held in the Fidelity Government Money Market Fund,* the eligible account’s core position.

To open a Youth Account you will need 2 forms of documentation to verify your teen’s identity. Acceptable forms of documentation include:

– Your teen’s Social Security card OR a copy of the first page of your latest filed 1040 tax return. This document should have your teen’s name and Social Security number (SSN) clearly visible.
– An unexpired document with your teen’s name (state-issued driver’s license, passport, birth certificate, or student ID card).

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.

Treasury Bond vs. Bank CD Rates: Adjusting For State and Local Income Taxes

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If you are an individual investor that usually buys bank certificates of deposit, right now you may want to compare against a US Treasury bond of similar maturity. Treasury bond rates are traded constantly, but this Vanguard brokered CD page can provide a rough idea if they are worth a closer look (even though their brokered CD may or may not be the best CD rate available). Again, this screenshot is already out of date:

Right now, they are pretty close for many maturity lengths. For example, let’s take a 1-year CD paying 3% APY and a 1-year Treasury bond paying 3%.

(Note: This may not be true by the time you read this. Here are the current Treasury bond rates. In the last two weeks alone, the 1-year Treasury has ranged from 2.79 to 3.21%. In 2022 alone, the low was 0.38%.)

An important consideration is that Treasury bonds are exempt from state and local taxes. This can make the Treasury bond significantly more attractive to some folks, even if the initial rate is the same. This assumes you are investing in a taxable account (not tax-sheltered). US Savings bonds are also exempt from state and local taxes.

For example, let’s say you are a single resident of California with a taxable income of $80,000 annually. Any easy way to compare the rates is by using a calculator like this Fidelity tax-equivalent yield calculator. Using the example income, it will find that your marginal tax rates are 22% Federal and 9.30% State (CA). I am assuming no local tax rates from your city or county.

What matters in the end is what you are left with after taxes. As such, the calculator supplies the following chart:

For this example person, a Treasury bond earning 3% will pay the same after-tax interest as a bank certificate of deposit paying 3.44%.

Here is a rough check on my part:

$10,000 * 3.44% * (1 – 0.22 – 0.093) = $236 in annual interest, after taxes

$10,000 * 3.00% * (1 – 0.22) = $234 in annual interest, after taxes

I suspect the minor difference has to do with the way that bond yields are quoted for Treasury bonds. This is also why the corporate bond yields are different from the CD yields even though they are subject to the same taxes.

Bond yields, except CDs, are assumed to be twice the semi-annual yield, as is the normal convention for quoting bond yields. CD yield is calculated as ((( corporate bond yield / 2) +1)² ) – 1

From the calculator fine print:

The calculator does not take into account:

– Reductions and limits on federal itemized deductions
– State and local taxes are not deducted from your federal tax rate. Depending on your personal situation, this may cause the resulting yield to be overstated.
– Federal alternative minimum tax (AMT)
– State alternative minimum tax
– Intangibles taxes levied by individual states
– Net Investment Income Tax
– Additional Medicare Tax

For practical purposes, I don’t sweat the minor differences. In order to actually buy many of these Treasury bonds at the time that you want and for the remaining maturity length that you want, you’ll have to buy them on the open secondary market. The available rates will change by the minute. Or, if you buy them as a new issue, you won’t know the rate at all as it is determined at auction. I mostly just want to know that the Treasury bond is preferable to a bank CD by an adequate margin. In this example, I would say that 0.44% higher annually is enough of a margin.

There are other wrinkles… if you don’t hold to maturity, Treasury bonds don’t offer the ability to withdraw early and only pay a preset interest penalty like a bank CD. You’d have to sell again on the open market, where you may lose (or gain) principal.

Armed with this information, you might create your own bond ladder using US Treasuries instead of a CD ladder. This is easy for an individual investor because you don’t need any skill to determine creditworthiness. Both US Treasury bonds and FDIC/NCUA-insured certificates of deposit are backed by the full faith and credit of the US government. (Municipal bonds don’t come with such a guarantee. Some municipalities are in better financial shape than others. I don’t buy individual municipal bonds for this reason.)

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 2022 2nd Quarter Update: Dividend & Interest Income

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via GIPHY

Here’s my quarterly update on the income produced by my Humble Portfolio (2022 Q2). I track the income produced as an alternative metric for performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (price), which helps encourage consistent investing. I imagine them as building up a factory that churns out dollar bills. You can still track your dividend and interest income with a total return portfolio. You don’t need a bunch of high-yield stocks, MLPs, leveraged REITs, or covered call ETFs.

Background: Overall stock market dividend growth. Stock dividends are a portion of net profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares directly. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Dividend cuts tend to be avoided. Thus the starting yield is lower, but it can grow faster. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total US Stock ETF (VTI), courtesy of StockAnalysis.com. Currently, 31% of VTI’s net earnings are sent to you as a dividend. Notice how it grows gradually, with the current annual dividend 76% higher than in September 2013:

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that means the dividends move up and down with earnings. Thus the starting yield is higher but may not grow as fast. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS). Currently, 47% of VXUS’s net earnings are sent to you as a dividend. Notice how it stays more stable (but also dropped during 2020 due to COVID), with the current annual dividend only 25% higher than in September 2013:

The dividend yield (dividends divided by price) also serve as a rough valuation metric. 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.

My personal portfolio income history. I started tracking the income from my portfolio in 2014. Here’s what the annual distributions from my portfolio look like over time:

  • $1,000,000 invested in my portfolio as of January 2014 would have generated about $24,000 in annual income over the previous 12 months. (2.4% starting yield)
  • If I reinvested the income but added no other contributions, today in 2022 it would have generated ~$48,000 in annual income over the previous 12 months.

This chart shows how the annual income generated by my portfolio has changed.

TTM income yield. To estimate the income from my portfolio, I use the weighted “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 (usually zero for index funds) over the same period. The trailing income yield for this quarter was 2.99%, as calculated below. Then I multiply by the current balance from my brokerage statements to get the total income.

Asset Class / Fund % of Portfolio Trailing 12-Month Yield Yield Contribution
US Total Stock (VTI) 25% 1.61% 0.40%
US Small Value (VBR) 5% 2.12% 0.11%
Int’l Total Stock (VXUS) 25% 3.87% 0.97%
Emerging Markets (VWO) 5% 3.35% 0.17%
US Real Estate (VNQ) 6% 3.14% 0.19%
Inter-Term US Treasury Bonds (VGIT) 17% 1.25% 0.21%
Inflation-Linked Treasury Bonds (VTIP) 17% 5.59% 0.95%
Totals 100% 2.99%

 

Commentary. My ttm yield is now ~3%. Both US and international stock prices have gone down, and my ttm dividend yield has gone up. The price of my Treasury bonds have also gone down as nominal rates have gone up, but the yield will eventually go up as the money is reinvested into new bonds at higher rates. My TIPS yield has gone up significantly as CPI inflation has spiked. Of course, the NAV on my TIPS has also gone down, as real yields have gone up (again will be better as money is reinvested). TIPS are a bit complicated like that.

Use as a retirement planning metric. As a very rough goal, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (before age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). It’s just a target, not a number sent down from a higher being. During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving in your skillset, and/or looking for entrepreneurial opportunities where you can have an ownership interest.

Even if do you reach that 25X or 30X goal, it’s just a moment in time. The market can shift, your expenses can shift, and so I find that tracking income makes more tangible sense in my mind and is more useful for those who aren’t looking for a traditional retirement. Our dividends and interest income are not automatically reinvested. They are another “paycheck”. Then, as with a traditional paycheck, we can choose to either spend it or invest it again to compound things more quickly. Even if we spend the dividends, this portfolio paycheck will still grow over time. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on. This is your one life and it only lasts about 4,000 weeks.

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 Humble Portfolio 2022 2nd Quarter Update: 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.

portpie_blank200Here’s my quarterly update on my current investment holdings as of 7/8/22, including our 401k/403b/IRAs and taxable brokerage accounts but excluding real estate and side portfolio of self-directed investments. Following the concept of skin in the game, the following is not a recommendation, but just to share an real, imperfect, low-cost, diversified DIY portfolio. The goal of this “Humble Portfolio” is to create sustainable income that keeps up with inflation to cover our household expenses.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have in their portfolio.” – Nassim Taleb

TL;DR changes: Went from 67/33 stocks/bonds ratio to 64/36, so buying more US and International Stocks with available cashflow.

How I Track My Portfolio
I’m often asked how I track my portfolio across multiple brokers and account types. (Morningstar also recently discontinued free access to their portfolio tracker.) 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 daily.
  • 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. I also create a new tab each quarter, so I have snapshot of my holdings dating back many years.

July 2022 Asset Allocation and YTD Performance
Here are updated performance and asset allocation charts, per the “Allocation” and “Holdings” tabs of my Personal Capital account.

Target Asset Allocation. I call this my “Humble Portfolio” because it accepts the repeated findings that individuals cannot reliably time the market, and that persistence in above-average stock-picking and/or sector-picking is exceedingly rare. Costs matter and nearly everyone who sells outperformance, for some reason keeps charging even if they provide zero outperformance! By paying minimal costs including management fees and tax drag, you can actually guarantee yourself above-average net performance over time.

I own broad, low-cost exposure to productive assets 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 have faith in the long-term benefit of owning publicly-traded US and international shares of businesses, as well as the stability of high-quality US Treasury and municipal debt. My stock holdings roughly follow the total world market cap breakdown at roughly 60% US and 40% ex-US. I add some “spice” to the vanilla funds with the inclusion of “small value” ETFs for US, Developed International, and Emerging Markets stocks as well as additional real estate exposure through US REITs.

I strongly believe in the importance of knowing WHY you own something. Every asset class will eventually have a low period, and you must have strong faith during these periods to truly make your money. You have to keep owning and buying more stocks through the stock market crashes. You have to maintain and even buy more rental properties during a housing crunch, etc. A good sign is that if prices drop, you’ll want to buy more of that asset instead of less. I don’t have strong faith in the long-term results of commodities, gold, or bitcoin – so I don’t own them.

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 model portfolio is popular in the moment just happens to hold the asset class that has been the hottest recently as well.

Find productive assets that you believe in and understand, and just keep buying them through the ups and downs. Mine may be different than yours.

I have settled into a long-term target ratio of roughly 70% stocks and 30% bonds (or 2:1 ratio) within our investment strategy of buy, hold, and occasionally rebalance. This is more conservative than most people my age, but I am settling into a more “perpetual income portfolio” as opposed to the more common “build up a big stash and hope it lasts until I die” portfolio. My target withdrawal rate is 3% or less. Here is a round-number breakdown of my target portfolio.

  • 30% US Total Market
  • 5% US Small-Cap Value
  • 20% International Total Market
  • 5% International Small-Cap Value
  • 10% US Real Estate (REIT)
  • 20% High-Quality bonds, Municipal, US Treasury or FDIC-insured deposits
  • 10% US Treasury Inflation-Protected Bonds (or I Savings Bonds)

Commentary. According to Personal Capital, my portfolio down about 16% for 2022 YTD. My US and International stocks have dropped enough that all new cashflow is being placed into buying more of those asset classes. Simple as that. Keep on truckin’.

Since that was so short and boring, here a quick fact that I keep in my head. Using the “Rule of 72”, we know that if your portfolio returns 7% a year, it will double roughly every 10 years. $10,000 invested for 10 years will double to $20,000. However, $10,000 invested for 20 years will quadruple into $40,000. $10,000 invested for 30 years will octuple into $80,000. That provides a sense of the power of compounding and how it starts slow but kicks into turbo mode later on. I’ve been investing for about 20 years, so I’m getting to the good part! 😉

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.

Fidelity Bloom App: Fintech Feel from Traditional Name ($50-$86 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.

Fidelity Bloom is a new financial app from Fidelity Investments targeted at helping young adults become more financially aware and develop better savings habits. The app is currently iOS only, Android “coming soon”. Fidelity has included many “behavioral pyschology” features from other fintech startup apps like a match on savings transfers, debit card cash back rewards, rounding up purchases and saving the difference, and shopping portal cashback. There are also $86 in total bonuses available:

  • $50 new Bloom app user bonus. Open a new Bloom account via app (iOS only currently) and fund it with $25 and get $50 into your Bloom Save account. Must open via app; use the QR code. Valid for both new and existing Fidelity brokerage customers.
  • Annual savings match. Through the end of 2022, new customers will receive an introductory 10% match on the first $300 saved into their Bloom Save account ($30 max for 2022). Standard annual match is 5% on first $300 saved ($15 max for 2023).
  • 10 cents from Fidelity with every debit card purchase. Fidelity will automatically deposit 10 cents into the Fidelity Bloom Save account every time customers use the Fidelity Bloom debit card. Reminds me of the Citi Rewards+ credit card. New users get a upfront $1 bonus for learning about this feature for a limited time.
  • Automatically round up purchases into savings. Customers can automatically round up5 purchases to the nearest dollar and have the difference moved to savings from their Fidelity Bloom Spend to their Fidelity Bloom Save account.
  • Up to 25% cashback through shopping portal. Receive up to 25% cash back into your Fidelity Bloom Save account when you shop in-app with 1,100+ participating retailers. New users get a upfront $5 bonus for learning about this feature for a limited time.

Interest rate? Is it a bank account? Is it a brokerage account? It’s a SIPC-insured brokerage account:

The Fidelity Bloom App is designed to help with your saving and spending behaviors through your Save and Spend accounts, which are brokerage accounts covered by SIPC insurance. They are not bank accounts and therefore are not covered by FDIC insurance.

You do get a routing number and account number for your two accounts, but the cash is held like their other non-retirement accounts. During the sign-up process, you can pick between one of three options for your core position:

  • Fidelity® Interest-Bearing Option (FCASH)
  • Fidelity Government Money Market Fund (SPAXX)
  • Fidelity Treasury Money Market Fund (FZFXX)

Although I have confidence in Fidelity’s long-term experience and conservatism in running these money market mutual funds, the lack of FDIC coverage is something to note. The rates may change daily, but as of 7/7/2022, FCASH yielded 0.69% APY, SPAXX 7-day yield was 1.03%, and FZFXX 7-day yield was 1.03%. View current rates here.

After you open via app, you can see the account balances at Fidelity.com but you’ll still need the app to change any settings. Here’s a screenshot from my app.

Is the new boss going to be same as the old boss? If you can offer the fancy software UI backed by solid customer service infrastructure, then that will be hard to beat.

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 – July 2022 Update

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 July 2022, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or portfolio stability, and there are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 7/6/2022.

TL;DR: 4% APY on up to $6,000 for liquid savings at Current with no direct deposit requirement. BrioDirect 1.80% APY liquid savings. 1-year CD 2.50% APY. 5-year CD 3.64% APY. Treasury bond rates worth a comparison. 9.62% Savings I Bonds still available if you haven’t done it yet.

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

  • 4% APY on $6,000. Current offers 4% APY on up to $6,000 total ($2,000 each on three savings pods). No direct deposit required. $50 referral bonus for new members with $200+ direct deposit with promo code JENNIFEP185. Please see my Current app review for details.
  • 3% APY on up to $100,000, but requires direct deposit and credit card spend. HM Bradley pays up to 3% APY if you open both a checking and credit card with them, and maintain $1,500 in total direct deposit each month and make $100 in credit card purchases each month. Please see my updated HM Bradley review for details.
  • 3% APY on 10% of direct deposits + 1% APY on $25,000. 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 customer $50 bonus via referral. See my One Finance review.
  • 3% APY on up to $15,000, requires direct deposit and credit card transactions. Porte requires a one-time direct deposit of $1,000+ to open a savings account. Porte then requires $3,000 in direct deposits and 15 debit card purchases per quarter (average $1,000 direct deposit and 5 debit purchases per month) to receive 3% APY on up to $15,000. New customer bonus via referral. See my Porte review.

High-yield savings accounts
Since the huge megabanks pay essentially no interest, I think every should have a separate, no-fee online savings account to accompany 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.

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. CFG Bank has a 13-month No Penalty CD at 1.70% APY with a $500 minimum deposit. Ally Bank has a 11-month No Penalty CD at 1.00% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 1.25% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Bread Financial has a 12-month certificate at 2.50% APY. Early withdrawal penalty is 180 days of interest.

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

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 1.42%. Compare with the Fidelity Government Money Market Fund (SPAXX), Fido’s sweep option which charges a higher expense ratio and thus only offers a 0.99% SEC yield.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.40% SEC yield ($3,000 min) and 2.50% 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 2.21% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.80% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

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

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 7/5/2022, a new 4-week T-Bill had the equivalent of 1.29% annualized interest and a 52-week T-Bill had the equivalent of 2.77% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.87% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 0.77% 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 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 May 2022 and October 2022 will earn a 9.62% 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-October 2022, 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 the fees charged if you mess 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.
  • NetSpend Prepaid pays 5% APY on up to $1,000 but be warned that there is also a $5.95 monthly maintenance fee if you don’t maintain regular monthly activity.

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.

  • The Bank of Denver pays 2.00% APY on up to $10,000 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. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $25k. Thanks to reader Bill for the updated info.
  • Presidential Bank pays 2.25% APY on balances between $500 and 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 (soon Liberty FCU) 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.
  • (I’ve had a poor customer service experience with this CU, but the rate is still good.) Lafayette Federal Credit Union is offering 2.02% APY on balances up to $25,000 with a $500 minimum monthly direct deposit to their checking account. No debit transaction requirement. They are also offering new members a $100 bonus with certain requirements. Anyone can join this credit union via partner organization ($10 one-time fee).
  • 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.

  • Lafayette Federal Credit Union (LFCU) has a 5-year certificate at 3.64% APY ($500 min), 4-year at 3.39% APY, 3-year at 3.13% APY, and 2-year at 2.88% APY. Note that the early withdrawal penalty for the 5-year is a relatively large 600 days of interest. Anyone nationwide can join LFCU by joining the Home Ownership Financial Literacy Council (HOFLC) for a one-time $10 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 3.35% APY. 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 3.80% APY vs. 2.93% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates rise.
  • 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 7/5/2022, the 20-year Treasury Bond rate was 3.31%.

All rates were checked as of 7/6/2022.

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 Solo FidFolios: DIY Custom Direct Indexing (Similar to M1 Finance)

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Fidelity just announced a new feature called Fidelity Solo FidFolios. You can make a custom index with up to 50 individual stocks, or a custom asset allocation portfolio using ETFs. You can then buy into your custom portfolio all a once using flat dollar amounts and Fidelity will juggle the fractional shares. For example, your $50 purchase could be split into 50 different individual companies.

“Now more than ever, investors want the peace of mind of trading, monitoring, and rebalancing custom stock portfolios in a simple way,” said Robert Mascialino, head of Fidelity’s retail brokerage business. “With the ability to align to a specific theme or individual values, Fidelity Solo FidFoliosSM helps leverage the power of direct indexing to build a customized portfolio while simplifying how investors manage what they own.”

Costs. Flat $4.99 per month, with a 90-day free trial. No stock commissions. Works within your usual Fidelity brokerage or IRA account. If you stop paying the fee, you just end up holding those individuals stocks and/or ETFs.

Note that this is different from their Fidelity Managed FidFolios, which is professionally managed by Fidelity and more about using tax-loss harvesting to gain a slight after-tax advantage. The cost for Managed Fidfolios is 0.40% annual management fee with a $5,000 initial minimum.

This may sound familiar, as it is pretty much what the start-up M1 Finance first introduced years ago, with the important distinction that M1 Finance is free (so far). Motif Investing also ran something similar before they shut down and their technology was acquired by Schwab.

I believe that a “custom robo-advisor” feature is going to be widespread in the future. Many DIY folks would like the ability to make your own customized all-in-one Target Retirement Fund. It’s really not that technically difficult to allow everyone to create their own custom glide path. I explored this with a small investment in M1, but in practice I have found it trickier to implement if you have to rebalance across various 401k plans, IRAs, and taxable brokerage accounts. Still, I’d rather use M1 Finance or this Solo Fidfolio over another robo-advisor that changes their model portfolios every few years to match up with whatever is currently trendy.

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.

Axos Invest Brokerage: $150 Bonus with $1,000 Deposit

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Axos is another financial app that combines banking, investing, and borrowing services. Right now, they are offering a $150 bonus when you open a new Axos Invest brokerage account, fund it with $1,000, and keep it there for 90 days. You can choose Self-Directed Trading or their Managed Portfolio (robo-advisor) option, but the Self-Directed option has no advisory fees and offers $0 stock and ETF trades. Options cost $1 per contract.

Transfer fee reimbursement. If you move $50,000+ of assets over, they will reimburse transfer fees up to $300.

Relatively straightforward promo with a solid return on cash locked up. Keep in mind that if you buy something and want to transfer it out later, you may have to pay an $75 outgoing transfer fee (see their fee schedule). If I want to avoid that, I usually either stay in cash, plan an exit to another broker that will reimburse that fee, or buy something that I plan on selling and just withdrawing cash without fees.

* Valid for one new Axos Invest accounts per person, and only open to U.S. residents. Current and former Axos Invest account holders who closed accounts within the past 90 days are not eligible. This offer is non-transferrable. Other restrictions may apply. This offer is not valid anywhere Axos Invest is not authorized to offer services. An Axos Invest Managed Portfolio or Self-Directed Trading application must be submitted before 11:59 p.m. PT on 6/30/2022 to qualify. You must open each new account and have qualifying direct deposit(s) that total at least $1,000.00 within 45 days during the first three (3) calendar months your account is open, including the month in which your account was opened. Direct deposit funds must be new to bank from a third-party source (not originated from another Axos Bank brand account) to receive bonus credit. All eligible awards will be delivered to your account or email address within 30 days following the 90-day waiting period. Terms and conditions subject to change without notice. New account holders are limited to opening one taxable Managed Portfolio or one taxable Self-Directed Trading account. The eligible award will be delivered into the first account opened. Subsequent market fluctuations and/or trading losses do not impact qualification.

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.

Schwab Hidden Fees: $187 Million Penalty For Intelligent Portfolios Robo-Advisor

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via GIPHY

Schwab has agreed to pay a $187 million SEC settlement due to being sneaky about the fees charged by their robo-advisor product, Schwab Intelligent Portfolios (SIP). Schwab used “free” but quietly forced its own customers to hold a lot of cash in an high-cost form where they can skim off fees (and you get paid less interest). It was a relatively open secret in the financial planning industry, as noted in my own Intelligent Portfolios review:

Schwab makes a ton of money on your idle cash, and it is NOT an accident that they force you to own cash in their automated portfolios.

However, the details of this SEC settlement show that their behavior was even worse than I initially thought. As explained by Matt Levine in Money Stuff, Schwab literally decided how much profit they wanted first, and then worked their model asset allocations around that number. The technical version:

Each of SIP’s model portfolios held between 6% and 29.4% of clients’ assets in cash. The amount of cash that each SIP model portfolio contained was pre-set so that Respondents’ affiliate bank would earn at least a minimum amount of revenue from the spread on the cash by loaning out the money. …

In order to offer SIP without charging an advisory fee, Schwab management decided that the SIP portfolios would collectively hold an average of at least 12.5% of their assets in cash. To meet that goal, management set the exact amount of cash in each of SIP’s model portfolios, with the most aggressive portfolio containing 6% cash and the most conservative portfolio 29.4%, based in large part on its analysis that Schwab Bank would make a minimum amount of revenue at these levels. Management then provided these pre-set cash allocations to CSIA. In building the SIP model portfolios, CSIA treated the cash allocations provided by management as constraints and did not alter or adjust the cash allocations in any way. …

On February 18, 2015, weeks before the SIP launch, two articles were published in the media that were critical of SIP, claiming that the drag from the high cash allocations was a hidden cost of the program. In reaction to these articles, Schwab management directed that the SWIA ADV brochure be re-written, and that a public relations campaign be launched to explain the SIP cash allocations. …

While the ADV brochures disclosed that Schwab Bank earned income from the cash allocation for each investment strategy, SWIA’s and CSIA’s ADV brochures stated that the cash allocations in the SIP portfolios were “set based on a disciplined portfolio construction methodology designed to balance performance with risk management appropriate for a client’s goal, investing time frame, and personal risk tolerance, just as with other Schwab managed products.” This was false and misleading because the cash allocations were actually pre-set in order to reach minimum revenue targets for the Respondents.

Here it is more accurately summarized in this Reuters quote:

“Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients’ returns when in reality it was decided by how much money the company wanted to make,” SEC enforcement chief Gurbir Grewal said.

Here’s what Schwab says in their press release:

We are proud to have built a product that allows investors to elect not to pay an advisory fee in return for allowing us to hold a portion of the proceeds in cash, and we do not hide the fact that our firm generates revenue for the services we provide.

Really, you don’t hide the fact? Let’s look at your product page now as of 6/15/2022. This is what you see without clicking further:

We believe cash is a key component of an investment portfolio. Based on your risk profile, a portion of your portfolio is placed in an FDIC-insured deposit at Schwab Bank. Some cash alternatives outside of the program pay a higher yield.

What else is not mentioned on their product page? The actual interest rate paid. The APY is not mentioned anywhere on that page, even through a link or fine print. You must go searching for this link, where you will find that SIP actually holds special “Sweep Shares” of the Schwab Government Money Fund (SWGXX) with a annual expense ratio of 0.44% and SEC yield of 0.38% as of 6/15/22. In comparison, Vanguard’s default cash sweep is the Vanguard Federal Money Market Fund (VMFXX) with a net expense ratio of 0.11% and SEC yield of 0.76% as of 6/15/22.

If you click further, you find their new fine print:

Assume a $100,000 account with a 10% Cash Allocation ($10,000), which would be a moderate—aggressive investment portfolio allocation. Using market interest rates from the first quarter of 2022, Schwab Bank earned about 1.03% on an annual basis on the cash it invested net of what it paid to clients in the Program. Schwab Bank would have received about $103 ($10,000 x 1.03%) on that cash deposit, annualized, which equates to 0.103% or 10.3 basis points ($103/$100,000) of the total client investment of $100,000.

However, the true cost to investors is not just the fees that Scwhab gets. Cash is not necessarily ideal for long-term portfolios. By dictating cash, you ignore other higher-yielding and arguably more appropriate options like their own Schwab Short-Term U.S. Treasury ETF (SCHO, 0.04% ER, 2.60% SEC yield) and Schwab Short-Term Bond Index Fund (SWSBX, 0.06% ER, 2.98% SEC yield).

Schwab customers are at this very moment, losing significant money from their high-cost cash drag instead of a low-cost, high-quality money market and/or short-term bond fund. Schwab customers should note that this quiet profit via cash holding motive runs throughout the company. The Schwab Bank “High Yield” Investor Savings account pays 0.05% APY. Uninvested bank sweep cash in your Schwab brokerage and retirement accounts pays a measly 0.01% APY.

I would bet that if you did a poll of all Schwab IP customers and asked them about it, a majority would have no idea about this arrangement.

Bottom line. After reading the details of this SEC settlement, the fact that Schwab put profit first and the actual design of the product second is the most offensive. I’d much rather you sell me a great product at a fair price. Schwab’s reputation is now lower in my mind. They have some good products, but I would not recommend Schwab Intelligent Portfolios (or any Schwab managed product based on their behavior here) for my family or friends.

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.

Chart: Every S&P 500 Bear and Bull Market in History

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Even though I don’t check my retirement account balances daily (or weekly, or often monthly) it can still be nearly impossible to tune out all the market noise. I was promptly notified via e-mail press release that the S&P 500 index officially reached “Bear Market” status today 6/13/2022. A bear market is defined as a 20% drop from previous high, ending when the index reaches a low and subsequently rises by 20%.

The email also included this handy list of every bear market in the history of the S&P 500 index (since 1928). Credit to S&P Dow Jones Indices:

Takeaway: You should always be prepared for a drop of 50% in your stock holdings. Enduring such uncomfortable volatility is the price of investing in stocks, and if you don’t pay it, you don’t get the full returns.

I’ve yet to find anyone with a clear way to avoid these swings. Beyond buy-and-hold, perhaps the only thing is to wait only for the “fat pitches”, which are rare and far between. Even then, will you have the guts to swing? This is why I think of my primary portfolio as the “Humble Portfolio”.

Here is list of every bull market in history. A bull market is defined as 20% rise from the previous low, ending when the index reaches a high and subsequently drops by 20%.

Takeaway: The bull markets more than make up for the bear markets over the long run. At some point, you will be reminded that in order to make up for a 50% drop, stocks would have to go up by 100% just to break even again. That’s sounds like a lot, but in fact that has happened repeatedly and then some. You can see in the chart that this most recent bull market was a +400% change, and that doesn’t even include dividends.

Every one needs to find a good balance through education and experience where they can hold the risky stuff through the bad times, while also be happy holding the boring stuff through the “but my neighbor got rich daytrading crpyto” times. We are currently going through another period of heightened uncertainty. How do you feel about your portfolio today?

“History doesn’t repeat itself but it often rhymes.” – attributed to Mark Twain

Photo credit: Unsplash

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.

Webull Broker: New Account 6 Free Stocks, $600 Account Transfer Promotion

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Updated 6 free stocks for new account, $600 transfer promos. Webull is a brokerage app (PC and web version also available) that has $0 stock trades, $0 options trades with $0 per contract fees, free real-time quotes, and no minimum balance requirement. (Fidelity, Schwab, E-Trade, and TD Ameritrade all still charge $0.65 per contract.)

Compared to Robinhood, Webull is more of a full-featured traditional brokerage shrunk down into an app. Robinhood has a sleeker minimalist feel, while Webull has a ton of options for real-time stock quotes, technical indicators, charting, etc.

New account bonus details. Right now, WeBull is offering new accounts up to 6 free shares of stock:

  • Open an account with Webull and get 2 free stocks valued between $3 and up to $300 each.
  • Link your bank and deposit any amount to receive 4 additional free stocks valued between $7 and up to $3,000 each.

Here is my Webull 6 free stocks referral link. Let’s be upfront and realistic here. The theoretical max total might be $12,600 but this is essentially a scratch-off lottery ticket where most people will get the minimum payout in the $34 range, but you also have a small shot at various larger prizes. The referrer gets some free shares as well, and I have received shares of TEVA, SNAP, SBUX, VG, and even one AAPL (pre-split, now worth $568) so some folks do get lucky. Thanks if you use it! After you get the new user bonus, you can refer other people as well.

Here are the full odds for the initial deposit bonus:

$7 to $30 value, odds are ~1:1.02
$31 to $100 value, odds are ~1:52.63
$101 to $1,000 value, odds are ~1:1111.11
$1,000 to $1,600 value, odds are ~1:10,000

Once you receive the stock and it settles, you can just sell it if you don’t want to keep it. Webull is a legit SIPC-insured broker, and the required information is the same as other brokers (name, address, SSN, work questions, investing experience questions, etc). 1

The nice thing about this bonus is that it doesn’t tie up any cash. You could open and fund with $1 and get your free scratch-offs.

Account transfer bonus details (both new and existing customers). WeBull is also running an account transfer promo, where if you transfer assets from another brokerage firm over to WeBull, they will offer the following bonus structure:

  • Transfer fee reimbursement up to $75 with ALL transfers of $2,000+ in new assets
  • $80 of fractional AAPL shares with $5,000 to $24,999 in new assets
  • $200 of fractional AAPL shares with $25,000 to $249,999 in new assets
  • $600 of fractional AAPL shares with $250,000+ in new assets

Fine print on “Net Incoming Account Value”:

Net Incoming Account Value = Only transfers added to your account between 6/1/2022 12:00AM ET – 6/30/2022 11:59PM ET will be considered as your net incoming account value. If you were to withdraw or transfer out any amount between 6/1/2022 12:00AM ET –8/29/2022 11:59PM ET, it will be deducted from your total net incoming account value. The net incoming account value you have in your account on 8/30/2022 12:00AM ET will determine which tier’s reward you will receive.

This promotion is open to new and existing customers (grab the new account bonus above first, then activate this promo). However, note that if you have already transferred an account over to WeBull in the past, you are not eligible to participate in this promotion.

In comparison with historical brokerage transfer promos, these are pretty good numbers for the respective asset sizes. (Again, just sell the Apple shares if you don’t want to keep them.) I have done multiple transfer promos and as long as your broker has your cost basis correctly stored (download a copy for yourself beforehand just in case) and you don’t hold certain mutual funds (if so, just do a partial transfer instead), the transfers have all gone smoothly via the ACAT system. Works very well for buy-and-hold type investors of individual stocks and ETFs.

Bottom line. Webull is a brokerage app with free stock trades and free options trading with no contract fees. The feel is more of a full-featured traditional brokerage account shrunk into your smartphone. New users can earn free shares of stock and you can earn an additional bonus for transferring over assets from another brokerage firm.

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.

Stacking VTI or VOO: Get Excited About S&P 500 and US Total Market Stock ETFs

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A satoshi, or “sat” for short, is the smallest unit of the cryptocurrency bitcoin. “Stacking Sats” is a popular term for gradually accumulating bitcoin by purchasing small amounts of bitcoin at a time. (100 million sats = 1 bitcoin.) The idea is that you should be excited about adding any amount to your stack, focusing on that forward progress instead of the current market price.

If only it would be as trendy for folks to “stack VOO” or “stack VTI”. A low-cost S&P 500 or US Total Market index ETF is a tax-efficient way to build up your ownership of a share of excellent American businesses. Unfortunately, there is always something shinier next to this vanilla product. Factor ETFs, themed ETFs, sector ETFs, and so on. John Rekenthaler of Morningstar has an interesting series of articles comparing the long-term returns of various alternatives to Vanguard index funds. See Vanguard’s Other Index-Fund Invention.

Even way back in 1992, Vanguard started offering “Value” and “Growth” index funds, essentially splitting the US stock market into two halves based on price/book ratios. Essentially, these were the first variation on the plain S&P 500 index fund. You might think one was better than other. (Most academics would have guessed Value would win.) So what happened over the next 20 years? Not very much! (Plus Growth won slightly.)

Of course, I would not be surprised at all to see Value squeak out a slight win over Growth after another 10 or 20 years. One is always going to be winning slightly, but take a step back and you can argue they are effectively tied. Why not just own the S&P 500 index fund and get the average?

(Quick reminder: The Rule of 72 says that 10% annualized means your money will double every 7.2 years. That means $10,000 will have doubled three times in about 21 years. $10k doubled to $20k, then doubled to $40k, then doubled to $80k!)

What if you rebalanced regularly between Value and Growth? If you rebalanced between the two funds every single month, your annual return would have increased by 0.10%. If you rebalanced between the two funds only once every 5 years, your annual return would have increased by 0.28%. But really, who rebalances only once every 5 years? In view, these numbers are still low enough to be in the noise range, and the extra return is not dependable.

What if you bought a low-cost actively-managed fund from Vanguard instead? Due much to Vanguard’s extremely low costs on their active funds, some actively-managed funds did do better, but others did worse. If you chose to buy the funds with the highest trailing returns, or the best Sharpe ratios, or the most popular funds (most assets), all that Ivy League brainpower and decades of investing experience would have still lagged behind a simple index fund portfolio. Only with the power to see the future would you have picked the index-beating funds.

As the saying goes, don’t let the pursuit of perfect be the enemy of the good. As someone sitting on a relatively big pile of VTI after 15+ years of stacking it share by share, I am certainly relieved that I didn’t get too distracted by all of the other shiny objects out there. Instead of remembering your highest portfolio value ever from your monthly statement, remember the number of shares of VTI or VOO that you own. Every $200 saved = 1 share of VTI. But in the end, as long as you get excited about stacking something of high-quality with long-term productive value, you’ll likely end up in a good place.

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.