S&P 500 Stocks: Are Long-Term Returns Always Above Inflation?

Posted on August 9, 2024 // 3 Comments

If you’d like a little bit of comfort as a long-term owner of stocks, check out this chart from Ben Carlson at A Wealth of Common Sense. He looks at every rolling 22-year period (based on a reader request) between 1926 to 2023, and finds that the minimum return during any 22-year period is still 1.4% above inflation. The average is a pretty impressive 7.2% above inflation.

Another interesting takeaway from this chart is that the enemy of after-inflation returns is not necessarily an intensely traumatic event like the Great Depression or World War II or the Great Financial/Housing Crisis, but also an extended period of high inflation. The worst real return period was around the 1970s:

Surprisingly, the worst 22 year period for real returns was not in the aftermath of the Great Depression but rather in the 1970s. The two-plus decade real return ending in the summer of 1982 was just 1.4% per year. That time frame featured an annual inflation rate of nearly 6% which is a high hurdle rate to beat.

Here is the a similar chart, but not adjusted for inflation.

Filed Under: Investing, Retirement //

Fidelity Treasury Only Money Market (FDLXX) as Fidelity Core Position Workaround

Posted on August 7, 2024 // 14 Comments

While it was welcome news that Fidelity now allows the Fidelity Government Money Market Fund (SPAXX) as a core position for their Cash Management Account as of June 2024, for many of us that reside in states with high state income tax rates, our net after-tax yield would still be much better if we were allowed to use the Fidelity Treasury Only Money Market Fund (FDLXX) as our core position instead.

This is because the interest from US government obligations like Treasury bills are exempt from state income taxes. (The Constitution declares that states are not allowed tax the Federal government.)

Many states have an income tax, but if you live in California, Connecticut, and New York, you should know that in 2023 neither Fidelity Government Money Market Fund (SPAXX) nor Fidelity® Treasury Money Market Fund (FZFXX) met the minimum investment in U.S. government securities required to exempt the distribution from tax in California, Connecticut, and New York. (Despite having Treasury in the name, FZFXX only had about 20% in eligible Treasury interest.) These are the core positions available in the standard Fidelity Account. Meanwhile, Fidelity Treasury Only Money Market Fund (FDLXX) did meet those requirements in 2023 with roughly 90% of interest eligible for exemption. (Source)

As of 8/4/24, the SEC yield of SPAXX was 4.98% and FDLXX was 4.95%. Pretty close. But if you assume a 10% state income tax rate, SPAXX would have to yield at least about 5.50% to equal the after-tax yield of FDLXX. This is just a ballmark estimate, and you can use Fidelity’s Tax-Equivalent Yield Calculator to get a more accurate number for your specific household.

Now, you can manually purchase FDLXX at any time with your SPAXX balance with no transaction fees. Then, whenever your SPAXX is zero and you still need cash, Fidelity will sell FDLXX on demand to fund any cash needs (Billpay, ACH withdrawal, debit card purchase, stock purchase, etc). However, if you get any new money like a paycheck direct deposit or dividend payment, it will automatically be used to purchase the core position (i.e. SPAXX). You’ll then have to make another manual purchase of FDLXX to convert that SPAXX to FDLXX. This is tedious and easy to forget about.

A workaround to this solution is to set up an automatic recurring purchase of FDLXX. Thanks to a comment from reader Henry and also this r\Fidelity post (actually multiple posts) where an official Fidelity rep confirmed that the mechanics work.

You’re on the right track; auto-liquidation of the Fidelity Treasury Only Money Market Fund (FDLXX) will occur to fund your recurring investment plan in this situation. Fidelity will attempt to cover debit balances created, whether through trades, direct debits, checkwriting, or even BillPay, by first using funds in your core balance. Once the core balance is depleted, the system will turn to any eligible secondary money market funds to cover the transaction.

As a recurring investment plan falls under the blanket of trades, auto liquidation will still be at play.

It’s important to note that not all non-core money markets are eligible for automatic liquidation to cover purchases. It is best practice to sell non-core money markets in advance of expected purchases, but you can also ask us about specific money markets to confirm their eligibility. As I alluded to above, FDLXX is eligible for auto-liquidation.

The mechanics. Depending on your cashflow patterns, you might set up a $1,000 weekly recurring purchase of FDLXX. If you have $1,000 in SPAXX (core), that will be used to purchase $1,000 of FDLXX. If you only have $150 of SPAXX, then $150 of SPAXX will be sold first AND $850 of FDLXX will be sold, and that will be used to purchase $1,000 of FDLXX. This is because FDLXX is classified as an “eligible secondary money market fund” and will auto-liquidate to satisfy your $1,000 purchase request, even though it’s effectively “buying itself”. If you don’t have enough FDLXX or other funds available, your scheduled purchase will be skipped that instance, but the recurring purchase plan will stay in place. Importantly, things like your stock holdings are NOT eligible for such auto-liquidation.

(Note: If you hold multiple money market funds, there is an order in which Fidelity will liquidate your money markets will liquidate. First the core position, next any taxable money markets, then any tax-exempt money markets (munis). Within each category, Fidelity draw from the fund with the highest balance first. Not all non-core money markets are eligible for automatic liquidation to cover purchases. Source.)

Here’s how to set up a recurring investment at Fidelity.

If you decide to proceed, you can set up a recurring investment by following the steps below after logging in on the website:

Expand the “Accounts & Trade” tab
Choose “Account Features”
Click “Manage” next to Recurring Transfers
You can set up recurring investments on a weekly, biweekly, or monthly basis.

A few screenshots:

Set up properly, this should keep your SPAXX balance at a minimum and regularly shoveled into FDLXX. It’s still a little messy but it’s the best workaround currently available. I have been using my Fidelity CMA as my new primary checking account and it has been working out pretty well so far.

Filed Under: Investing //

Best Interest Rates on Cash Roundup – August 2024

Posted on August 4, 2024 // 2 Comments

Here’s my monthly roundup of the best interest rates on cash as of August 2024, roughly sorted from shortest to longest maturities. There are lesser-known opportunities available to individual investors, often earning more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 8/4/2024.

TL;DR: Rates are dropping at all longer maturities, from 1-year out. Still 5%+ savings accounts and short-term CDs. Compare against Treasury bills and bonds at every maturity, taking into account state tax exemption. I no longer recommend fintech companies due to the possibility of loss due to poor recordkeeping and/or fraud.

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

  • The top rate at the moment is at Poppy at 5.50% APY (3-month rate guarantee). I have no personal experience with them, but they are the top rates at the moment. CIT Platinum Savings at 5.00% APY with $5,000+ balance.
  • SoFi Bank is at 4.60% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has historically competitive rates and full banking features. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • Here is a limited survey of high-yield savings accounts. They aren’t the top rates, but a group that have historically kept it relatively competitive such that I like to track their history. Sad to see Ally Bank falling even further behind.

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. Marcus has a 7, 11, and 13-month No Penalty CD at 4.70% APY with a $500 minimum deposit. Consider opening multiple CDs in smaller increments for more flexibility.
  • EagleBank has a 1-year certificate at 5.40% APY ($1,000 min). I could not locate their early withdrawal penalty.
  • NexBank has a 1-year certificate at 5.35% APY ($10,000 min). There is a 180-day interest penalty if you withdraw your CD funds before maturity.

Money market mutual funds
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). Note: Money market mutual funds are highly-regulated, but ultimately not FDIC-insured, so I would still stick with highly reputable firms.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.28% (changes daily, but also works out to a compound yield of 5.41%, which is better for comparing against APY). Odds are this is much higher than your own broker’s default cash sweep interest rate.

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

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 8/4/24, a new 4-week T-Bill had the equivalent of 5.37% annualized interest and a 52-week T-Bill had the equivalent of 4.37% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.24% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.20% SEC yield and effective duration of 0.08 years.

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

  • “I Bonds” bought between May 2024 and October 2024 will earn a 4.28% 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 2024, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

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

  • OnPath Federal Credit Union pays 7.00% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, and login to online or mobile banking once per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization. You can also get a $100 Visa Reward card when you open a new account and make qualifying transactions.
  • Genisys Credit Union pays 6.75% APY on up to $7,500 if you make 10 debit card purchases of $5+ each per statement cycle, and opt into online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 12 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Andrews Federal Credit Union pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit or ACH transaction per statement cycle. Anyone can join this credit union via partner organization.
  • Pelican State Credit Union pays 6.05% APY on up to $20,000 if you make 15 debit card purchases, opt into online statements, log into your account at least once, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • Orion Federal Credit Union pays 6.00% APY on up to $10,000 if you make electronic deposits of $500+ each month (ACH transfers count) and spend $500+ on your Orion debit or credit card each month. Anyone can join this credit union via $10 membership fee to partner organization membership.
  • All America/Redneck Bank pays 5.00% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • Find a locally-restricted rewards checking account at DepositAccounts.

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

  • Grow Financial FCU has a 5-year CD at 4.75% APY. 4-year at 4.02% APY. 3-year at 4.02% APY. 2-year at 4.33% APY. 1-year at 4.75% APY. $500 minimum. The early withdrawal penalty (EWP) for CD maturities of 12 months or more is 180 days of interest. Membership to this credit union is open nationwide to members of Friends of U.S. Military Families ($5).
  • Credit Human has a 59-month CD at 4.60% APY. 48-month at 4.60% APY. 35-month at 4.70% APY. 23-month at 5.00% APY. 1-year at 4.90% APY. $500 minimum. The early withdrawal penalty (EWP) for CD maturities of 36 months or more is 365 days of interest. For CD maturity of 1 year, the EWP is 270 days of interest. This is actually a credit union, but is open nationwide with a American Consumer Council (ACC) membership. Try promo code “consumer” when signing up at ACC for a free membership.
  • First Internet Bank has a 5-year CD at 4.50% APY. 4-year at 4.45% APY. 3-year at 4.61% APY. 2-year at 4.76% APY. 1-year at 5.26% APY. $1,000 minimum. The early withdrawal penalty (EWP) for CD maturities of 2 years or more is 360 days of interest. For CD maturity of 1 year, the EWP is 180 days of interest.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I see a 5-year non-callable CD at 3.95% APY (callable: no, call protection: yes). Be warned that now both Vanguard and Fidelity will list higher rates from callable CDs, which importantly means they can call back your CD if rates drop later.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk (tbh, I don’t use them at all), but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CDs at 4.05% (non-callable) vs. 3.80% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.

All rates were checked as of 8/4/2024.

Photo by Giorgio Trovato on Unsplash

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

Charles Schwab Brokerage: Up to $6,000 New Deposit / Transfer Bonus (New & Existing Customers)

Posted on July 26, 2024 // 15 Comments

Update: Schwab has suspended/ended this “Up to $6,000” transfer promotion as of October 2024. The referral offer appears to still be available, which is up to $1,000.

Brokerage firms constantly compete for “assets under management”, and many are willing to give you cash to move over your existing portfolio from your existing broker over to them. Unfortunately, many of these offers are for new app startups with questionable customer service. How about a traditional firm with telephones connected to knowledgable humans working inside physical branches in major metro areas?

Charles Schwab is currently offering up to a $6,000 cash bonus depending the value of assets that you move over (qualifying net deposit of cash or securities) within 45 days of enrollment. The minimum hold period is one year for taxable brokerage accounts. The percentages aren’t the best, and the tiers are relatively high, but this is actually a brokerage I wouldn’t mind leaving my assets at for the long run. It’s also available to existing Schwab customers.

  • $200 with $50,000–$99,999 in new assets
  • $300 with $100,000–$249,999 in new assets
  • $600 with $250,000–$499,999 in new assets
  • $1,200 with $500,000–$999,999 in new assets
  • $2,500 with $1,000,000-$4,999,999 in new assets
  • $6,000 with $5,000,000+ in new assets

Note: New-to-Schwab clients should compare this with the Schwab Referral Offer, which may offer a slightly higher bonus at specific asset levels (ex. $100 bonus on $25k in new assets, $300 bonus on $50k in new assets, $500 bonus on $100k in new assets). At the higher tiers, the offer above is better. That’s my referral link, thanks if you use it (although please let me know if you have issues with it; I’ve never actually gotten a bonus from Schwab so I’m not sure if it really works).

The easiest option is often to perform an in-kind ACAT transfer of existing securities, which takes less than a week and all of your tax basis information should also move over after another few days. Your old broker may charge you an outgoing ACAT fee about about $75, although you should ask Schwab if they will reimburse you for
this fee.

Both taxable and IRA accounts are eligible. From the fine print and FAQ:

Accounts that are eligible for the Schwab Investor Reward include: Schwab retail brokerage accounts and individual retirement accounts (IRAs), including accounts enrolled in Schwab-sponsored investment advisory programs such as Schwab Intelligent Portfolios®, Schwab Managed Portfolios™, Schwab Managed Account Select®, Schwab Managed Account Connection®, and Schwab Wealth Advisory™.

Schwab Bank Investor Checking™ accounts do not qualify for this promotion whether they are linked to a brokerage or are stand-alone. If you make a deposit in a Schwab Bank Investor Checking™ account, you will not receive the award. The offer also does not apply to the Schwab Global Account™, ERISA-covered retirement plans, certain tax-qualified retirement plans and accounts, education savings accounts, Schwab Bank accounts, or accounts managed by independent investment advisors.

Can two clients in the same home get the award?

Yes. As long as both clients have individual accounts and separately qualify for the Reward, provided that each makes a qualifying net deposit.

Schwab appears to still be offering their $101 Starter Kit promo. But the FAQ says “Can this offer be combined with other offers? No. This offer can’t be combined with other offers.” I’m not sure if it counts as combining if you first open the new account for the Starter Kit bonus, wait, and then participate in this transfer offer.

One major drawback with Schwab is that the default cash sweep is not good. Still just 0.48% APY as of 7/16/24! Boo. You need to take proactive steps to avoid lost interest if you plan to keep significant amounts of cash in their default sweep account. Consider buying Treasury bills, brokered CDs, or Treasury Bill ETFs like GBIL (still possible to lose value). See my separate post on the best alternative Schwab cash sweep options.

Filed Under: Deals & Offers, Investing //

529 College Savings Plans: All 50 States Tax Benefit Comparison (Updated 2024)

Posted on July 24, 2024 // 33 Comments

Updated for 2024. Morningstar is a great resource for research on 529 college savings plans, and they have recently updated their annual deep dive on 529 plans: The 2024 529 Savings Plan Landscape (e-mail required).

When choosing a 529 college savings plan, you can open a 529 plan from any state (not just your own). However, each state can vary widely in what they offer in terms of tax deductions and/or tax credits. So how to do you choose?

  • No state tax? ➡ Just pick the best overall plan.
  • No special tax benefits (deduction or credit)? ➡ Just pick the best overall plan.
  • Home state offers tax parity? (the same tax benefits no matter which state’s plan you pick) ➡ Just pick the best overall plan.
  • Home state requires you to contribute to your home state plan to get the tax perk? ➡ Technically, you should compare the annual tax savings against any potential perks from the best overall plan (lower annual expenses, superior investment options). In most cases, I have found that if a state cares enough to offers a state tax deduction or tax credit, and you are contributing an amount under or around the max limit (ex. under $200 a month), then the in-state plan is most likely good enough and you should stick with it. The main exception is if you plan on funding your plan with a large upfront contribution, where a lower expense ratio would really matter.

If you are in the last situation in which you have to do some math, this Morningstar article also runs the numbers for a theoretical couple filing jointly with a gross annual income of $100,000 that deposits $3,000 a year (or $250 a month) into one beneficiary’s 529 account. The chart is useful to provide a quick idea of your state’s tax benefits at a glance, but I would make sure to run the numbers for your income and your expected annual contribution. This Vanguard state deduction calculator tool may be helpful to double-check your calculations.

Finally, note that some states will also recapture any tax benefits if you perform an outbound 529 rollover, or otherwise do not conform with federal tax laws regarding 529 distributions.

Top plans quick recap. Here are Morningstar’s top Gold and Silver-rated plans as of Summer 2024.

I personally invest in the Utah My529 Plan for my children due to their DIY glide path feature and DFA fund access, but my second choice would be the Vanguard Nevada 529 Plan if you want something that is more “set-and-forget”, especially if you already have other accounts at Vanguard. I wouldn’t spend too much time splitting hairs – taking action and starting an automatic savings plan is the most critical decision.

Opening a plan and making any contribution also starts the 10-year clock on potential future 529-to-Roth IRA rollovers.

Filed Under: College & Education, Investing //

Best Interest Rates on Cash Roundup – July 2024

Posted on July 10, 2024 // 2 Comments

Here’s my monthly roundup of the best interest rates on cash as of July 2024, roughly sorted from shortest to longest maturities. There are lesser-known opportunities available to individual investors, often earning more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 7/9/2024.

TL;DR: Very minor changes since last month. Still 5%+ savings accounts and short-term CDs, with long-term CD rates holding roughly steady since last month. Compare against Treasury bills and bonds at every maturity, taking into account state tax exemption. I no longer recommend fintech companies due to the possibility of loss of permanent capital loss, or at the minimum access to cash for months in the event of a company or middleman failure.

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

  • The top rate at the moment is at My Banking Direct at 5.55% APY . Poppy at 5.50% APY (3-month rate guarantee). I have no personal experience with them, but they are the top rates at the moment. CIT Platinum Savings at 5.00% APY with $5,000+ balance.
  • SoFi Bank is at 4.60% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has historically competitive rates and full banking features. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • Here is a limited survey of high-yield savings accounts. They aren’t the top rates, but a group that have historically kept it relatively competitive such that I like to track their history. Sad to see Ally Bank falling even further behind.

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. Marcus has a 13-month No Penalty CD at 4.70% APY with a $500 minimum deposit. Also available at 7- and 11-months. Consider opening multiple CDs in smaller increments for more flexibility.
  • NexBank has a 1-year certificate at 5.40% APY ($25,000 min). There is a 180-day interest penalty if you withdraw your CD funds before maturity.
  • CFG Bank has a 12-month CD at 5.36% APY ($500 min). 90-day interest penalty if you withdraw your CD funds before maturity.

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

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.27% (changes daily, but also works out to a compound yield of 5.40%, which is better for comparing against APY). Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 5.33% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 5.09% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

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

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 7/9/24, a new 4-week T-Bill had the equivalent of 5.37% annualized interest and a 52-week T-Bill had the equivalent of 5.02% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.27% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.22% SEC yield and effective duration of 0.08 years.

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

  • “I Bonds” bought between May 2024 and October 2024 will earn a 4.28% 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 2024, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

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

  • OnPath Federal Credit Union pays 7.00% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, and login to online or mobile banking once per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization. You can also get a $100 Visa Reward card when you open a new account and make qualifying transactions.
  • Genisys Credit Union pays 6.75% APY on up to $7,500 if you make 10 debit card purchases of $5+ each per statement cycle, and opt into online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 12 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Andrews Federal Credit Union pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit or ACH transaction per statement cycle. Anyone can join this credit union via partner organization.
  • Pelican State Credit Union pays 6.05% APY on up to $20,000 if you make 15 debit card purchases, opt into online statements, log into your account at least once, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • Orion Federal Credit Union pays 6.00% APY on up to $10,000 if you make electronic deposits of $500+ each month (ACH transfers count) and spend $500+ on your Orion debit or credit card each month. Anyone can join this credit union via $10 membership fee to partner organization membership.
  • All America/Redneck Bank pays 5.00% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • Find a locally-restricted rewards checking account at DepositAccounts.

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

  • Grow Financial FCU has a 5-year CD at 4.75% APY. 4-year at 4.02% APY. 3-year at 4.02% APY. 2-year at 4.33% APY. 1-year at 4.75% APY. $500 minimum. The early withdrawal penalty (EWP) for CD maturities of 12 months or more is 180 days of interest. Membership to this credit union is open to members of Friends of U.S. Military Families ($5).
  • Credit Human has a 59-month CD at 4.65% APY. 48-month at 4.65% APY. 35-month at 4.75% APY. 23-month at 5.10% APY. 1-year at 4.95% APY. $500 minimum. The early withdrawal penalty (EWP) for CD maturities of 36 months or more is 365 days of interest. For CD maturity of 1 year, the EWP is 270 days of interest. This is actually a credit union, but is open nationwide with a American Consumer Council (ACC) membership. Try promo code “consumer” when signing up at ACC for a free membership.
  • First Internet Bank has a 5-year CD at 4.50% APY. 4-year at 4.45% APY. 3-year at 4.61% APY. 2-year at 4.76% APY. 1-year at 5.26% APY. $1,000 minimum. The early withdrawal penalty (EWP) for CD maturities of 2 years or more is 360 days of interest. For CD maturity of 1 year, the EWP is 180 days of interest.
  • BMO Alto has a 5-year CD at 4.80% APY. 4-year at 4.70% APY. 3-year at 4.60% APY. 2-year at 4.65% APY. 1-year at 5.05% APY. No minimum. The early withdrawal penalty (EWP) for CD maturities of 1 year or more is 180 days of interest. For CD maturities of 11 months or less, the EWP is 90 days of interest. Note that they reserve the right to prohibit early withdrawals entirely (!). Online-only subsidiary of BMO Bank.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I see a 5-year non-callable CD at 4.45% APY (callable: no, call protection: yes). Be warned that now both Vanguard and Fidelity will list higher rates from callable CDs, which importantly means they can call back your CD if rates drop later.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk (tbh, I don’t use them at all), but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CDs at [n/a] (callable: no, call protection: yes) vs. 4.30% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.

All rates were checked as of 7/9/2024.

Photo by micheile henderson on Unsplash

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

US stocks 500% vs. International Stocks 100% Gain Over Last 16 Years

Posted on July 9, 2024 // 7 Comments

If you’ve looked at your portfolio and wondered exactly how much US stocks have outperformed the rest of the world, Charlie Bilello shares in his July 4th post USA! USA! USA!:

Over the last 16 years, US stocks have gained 502% vs. 104% for International stocks and 65% for Emerging Markets. This is by far the longest cycle of US outperformance that we’ve ever seen.

Will the gap continue to grow? I still don’t know, which is why I will continue to hedge my bets. Sometimes you shell out for insurance and it doesn’t pay out a claim. That doesn’t necessarily mean you should complain. I’m satisfied with my portfolio performance over the last 16 years. I couldn’t predict what happened, and I can’t predict how the next 16 years will go. I’d happily take another 16 years of the same, even if it means lagging the S&P 500 by a lot.

Filed Under: Investing //

MMB Portfolio Dividend & Interest Income Update – July 2024 (Post Q2)

Posted on July 3, 2024 // Leave a Comment

Here’s my quarterly income update as a companion post to my July 2024 asset allocation & performance update. I prefer to track the income produced as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. 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. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated after 2024 Q1 (via Yardeni Research):

That is a much smoother ride than the price index. I imagine my portfolio as a factory that churns out dollar bills, or a tree that gives dividend fruit.

Why I like tracking dividends in general. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. They have explicitly decided that they don’t need this money to improve their business, and that it would be better to distribute to shareholders. 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. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. There is also a growing trend towards buybacks, partially because they are easier to discontinue. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the iShares Core S&P 500 ETF (IVV) via StockAnalysis.com.

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

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.

In the case of REITs, they are legally required to distribute at least 90 percent of their taxable income to shareholders as dividends. Historically, about half of the total return from REITs is from this dividend income.

Finally, the last component comes from interest from bonds and cash. This will obviously vary with the prevailing interest rates, the real rates on TIPS, and the current rate of inflation. In 2024, we are finally back to getting paid a small percentage more than inflation on our cash.

Dividend and interest income from my specific asset allocation. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 7/1/24), 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. My TTM portfolio yield is now roughly 2.65%.

What about the 4% rule? For big-picture purposes, 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 (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). Too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens!

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving your skillset, networking, and/or looking for asymmetrical entrepreneurial opportunities where you have an ownership interest.

As a semi-retired investor that has been partially supported by portfolio income for a while, I find that tracking income makes more tangible sense in my mind. Our dividends and interest income are not automatically reinvested. They are simply another “paycheck”. As with our other variable paychecks, we can choose to either spend it or invest it again to compound things more quickly. 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. You don’t have to wait until you hit a huge magic number. FIRE is Life!

Filed Under: Goals, Investing, Retirement //

MMB Portfolio Asset Allocation & Performance Update – July 2024 (Post Q2)

Posted on July 2, 2024 // 13 Comments

Here’s my 2024 Q2 update for our primary investment holdings, including all of our combined 401k/403b/IRAs and taxable brokerage accounts but excluding our house and side portfolio of self-directed investments. Following the concept of skin in the game, the following is not a recommendation, but a sharing of our real-world, imperfect, low-cost, diversified DIY portfolio.

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

How I Track My Portfolio
Here’s how I track my portfolio across multiple brokers and account types. There are limited free advanced options after Morningstar discontinued free access to their portfolio tracker. I use both Empower Personal Dashboard (previously known as Personal Capital) and a custom Google Spreadsheet to track my investment holdings:

  • The Empower Personal Dashboard real-time portfolio tracking tools (free) automatically logs into my different accounts, adds up my various balances, tracks my performance, and calculates my overall asset allocation daily. Formerly known as Personal Capital.
  • Once a quarter, I also update my manual Google Spreadsheet (free to copy, 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 a personal archive of my holdings dating back many years.

2024 Q2 Asset Allocation and YTD Performance
Here are updated performance and asset allocation charts, per the “Holdings” and “Allocation” tabs of my Empower Personal Dashboard.

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 businesses worldwide, as well as the stability of high-quality US Treasury debt. My stock holdings roughly follow the total world market cap breakdown at roughly 60% US and 40% ex-US. I do add just a little “spice” to the broad funds with the inclusion of “small value” factor ETFs for US, Developed International, and Emerging Markets stocks as well as diversified real estate exposure through US REITs. But if you step back and look at the big picture, my target portfolio is quite boring.

By paying minimal costs including management fees, transaction spreads, and tax drag, I am trying to essentially guarantee myself above-average net performance over time.

The portfolio that you can hold onto through the tough times is the best one for you. Every asset class will eventually have a low period, and you must have strong faith during these periods to earn those historically high returns. 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. You’ll usually find that whatever model portfolio is popular at the moment just happens to hold the asset class that has been the hottest recently as well.

I have settled into a long-term target ratio of roughly 70% stocks and 30% bonds within our investment strategy of buy, hold, and occasionally rebalance. My goal has evolved to more of a “perpetual income portfolio” as opposed to a “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 asset allocation along with my primary ETF holding for each asset class. The reality is of course a bit more messy.

  • 35% US Total Market (VTI)
  • 5% US Small-Cap Value (VBR)
  • 20% International Total Market (VXUS)
  • 5% International Small-Cap Value (AVDV)
  • 5% US Real Estate (REIT) (VNQ)
  • 15% US “Regular” Treasury Bonds or FDIC-insured deposits
  • 15% US Treasury Inflation-Protected Bonds (or I Savings Bonds)

Performance details. According to Empower, my portfolio is up about 6% so far in 2024. The S&P 500 is up about 14.5% YTD, while the US Bond index is down around 1%. I hold enough bonds and international stocks that I’m always going to be lagging the hottest sector, and I’m pretty much used to that now.

As usual, not much action. These quarterly updates are mostly for me to manually log into all my accounts to make sure they still exist. I didn’t sell a single share of anything. I did reinvest some dividends and interest to bring me back towards my target numbers. The US capital markets continue to reward the long-term investors who take on the risk of owning stocks.

I’ll share about more about the income aspect in a separate post.

Filed Under: Goals, Investing, Retirement //

Kindle Unlimited eBooks: Free 3-Month Trial for Prime Members

Posted on June 25, 2024 // 6 Comments

Amazon is offering Prime members a free 3-month trial of Kindle Unlimited. (Prime Day is coming up in mid-July.) This offer appears to be widely available to Prime members unless you’ve had a trial recently in the last year or so.

  • Enjoy unlimited access to over 1 million books.
  • Explore a rotating selection of popular magazines.
  • Listen to thousands of books with Audible narration.
  • Read anytime, on any device with the Kindle app.

(Note that I am an Amazon affiliate and Amazon doesn’t let me put links in e-mails, so you may have to visit the original post to see all the links. Thank you.)

You should be able to manually cancel your Kindle Unlimited membership early and it will let you keep your membership open until the end of the trial period, and not renew automatically. If you don’t do anything, it will auto-renew at the end of trial period at $11.99 per month. Remember that after you end your Kindle Unlimited subscription, you will lose access to all of the Kindle Unlimited books.

What personal finance and investing books are included? You can view all Kindle Unlimited books here. You can search Kindle Unlimited titles here after clicking the “Kindle Unlimited Eligible” box on the top-left. There are is a mix of a few bestsellers, some older classics, and a lot of independently-published titles of varying quality. Here are some business and finance-related titles that caught my eye:

Kindle Unlimited authors get paid per page that is read. Therefore, your reading actually pays authors for their work!

Filed Under: Deals & Offers, Investing //

Vanguard Will Now Close Your Account If You Call Them Too Much (Even Loyal 80yo “Owners”)

Posted on June 25, 2024 // 17 Comments

Between Fidelity, Schwab, and Vanguard, I am surprised that Vanguard is the one that most wants to be like Robinhood. Their brokerage account, officially Vanguard Brokerage Services (VBS), recently added a bunch of new fees but also officially declared themselves as having a “digital-first service model”. That’s corporate-speak for “we want to spend less money on customer service”.

This was brought to my attention by this RIABiz article “Vanguard warns its phone-reliant investors of ‘termination’ — without warning or explanation — under new contract, effective July 1”, which includes this Editor’s take:

My guess is that this gobsmacking set of legal clauses in the new Vanguard contract will, in retrospect, be the high point of the seeming absurdity at the grand old Malvern, Pa., fund company.

Indeed, look at this language from the amended Vanguard Brokerage Account Agreement:

You understand that excessive reliance on Our phone associates for tasks that can be accomplished online may negatively impact Your customer service experience, including but not limited to delayed response times, additional fees, and possible Account termination.

VBS reserves the right to resolve Non-Trade Inquiries exclusively on its website or other available channels as opposed to providing such information by phone. Furthermore, at its discretion, consistent with Section 8(c) of this Agreement, VBS reserves the right to close Your Account, or terminate any feature or service at any time, for any reason, and without prior notice, inclusive of not meeting Our Digital Interaction Expectations.

Wow. We’ll ignore you, fine you, or just fire you. This was foreshadowed by this March 2024 post on the Bogleheads forum “What to do?? [Vanguard warning about closing account for calling too frequently”.

This person did make a lot of phone calls to Vanguard. But lets look at the reasons:

  • Transition from mutual fund platform to VBS. This was mandated involuntarily by Vanguard themselves!
  • Required Minimum Distributions, which I would file under a “complex” topic.
  • Transfer of external IRA to Vanguard.

These are all legitimate inquiries, not just checking a balance or even placing a trade (for which you now charge $25 a pop anyway).

Next, let’s add some more context. This member is 80 years old and has been a Vanguard customer since the 1970s! She is a Flagship member, which means that over time she has accumulated over $1 million in assets with Vanguard.

A loyal customer of 50+ years, who is 80+ years old, called you a bunch of times about legitimately complex subjects. So of course, you threaten to close their account?! Vanguard, you are not meeting *My* Don’t Be A Soulless Jerk Corporation Expectations.

Vanguard’s home page loudly touts how we are owners, not just investors.

Yet this just reeks of the same impersonal corporate bean-counting that Vanguard’s competitors used to be accused of. If customer calls more than X times in Y days, let’s fire them. We don’t measure things like loyalty or compassion for those that may not be as able to use digital tools due to age or disability. What a way to treat an “owner” of 50+ years.

This new rule won’t affect me now because I avoid calling Vanguard if at all possible. (You’re welcome, Vanguard!) But I can see a day when I am older and I will need a bit more assistance and understanding. Is this what I have to look forward to? I searched for “Fidelity closed my account because of too many phone calls” and “Schwab closed my account because of too many phone calls” and could not find any similar examples.

What made Vanguard, Vanguard? In my opinion, it was their willingness to forgo profit in order to better serve the everyday individual investor. Some people due to age or disability may need more phone help than others, and there should be some discretion.

We’re supposed to be “owners”, right? Well, if you’re an “owner” when was the last time Vanguard let you decide anything? I would give up some basis points for world-class customer service. They don’t release executive compensation. How much is this new CEO from Blackrock being paid? Those are costs, how about we see them?! Vanguard had to disclose that every person on their Board of Directors makes $300,000 a year for a part-time side gig. That may be the Wall Street norm, but I thought that Vanguard was different. Not a single person on the Berkshire Hathaway Board of Directors makes more than $7,000 a year, and those are mostly just reimbursements for physically traveling to attend Board meetings in person.

Vanguard appears to worship at the Church of Assets Under Management. Perhaps the metric they should be following is customer satisfaction and customer retention rates. As an owner of Vanguard, I’d like to see those numbers too.

Filed Under: Investing //

Robinhood Gold x Free $1,000 Margin ($2,000 Until August 2024)

Posted on June 16, 2024 // 10 Comments

If you joined the Robinhood Gold subscription service for the (expired) 3% IRA transfer bonus, you have have noticed that it includes $1,000 of margin interest-free (0% APR). Right now, they are increasing this amount to $2,000 of margin interest-free until 8/18/24. (It goes back to $1,000 afterward.) Some folks have been using this free loan to buy safe securities and collecting the dividends/interest. While I’m not usually a fan of debt and/or leverage, I’m alright if it is collateralized with something safe and liquid.

What is margin? Basically, it’s a loan for which you put up your investments as collateral. You must have a “margin account” instead of a “cash account” in order to be eligible for this line of credit. From Investopedia:

Margin is the money borrowed from a broker to purchase an investment and is the difference between the total value of an investment and the loan amount.

Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker.

A margin account is a standard brokerage account in which an investor is allowed to use the current cash or securities in their account as collateral for a loan.

Leverage conferred by margin will tend to amplify both gains and losses. In the event of a loss, a margin call may require your broker to liquidate securities without prior consent.

How do I know if I’m using margin? From the Robinhood Margin FAQ:

Before you can invest on margin, you have to apply and will only have access if you meet eligibility requirements.

You’ll only start investing on margin after the cash in your investing account has been fully invested. This means that if you have cash in your account, you won’t invest on margin until it’s fully spent.

For example, suppose you have $3,000 in your investing account—$2,800 in stocks and $200 cash. If you buy an additional $500 of MEOW stock, you will use your $200 in remaining cash first and the remaining $300 would be invested on margin using the securities in your account as collateral.

Once you have used margin funds for investing, you can check your total margin used amount in Investing — Buying power

How much money do I need in my account to invest on margin? For the most part, you need $2,000 to apply for margin. Here’s the official answer:

To purchase a security on margin, FINRA (a government-authorized regulator of brokerage firms) requires that you have at least $2,000 or 100% of the security’s purchase price (whichever value is less) deposited into your account. This is called the margin minimum.

If you’re flagged as a pattern day trader, you must have $25,000 in portfolio value (minus any crypto positions) before you can continue day trading.

Robinhood Securities, LLC (RHS) may also impose additional requirements and certain customers may not be eligible to use margin based on RHS internal guidelines.

Why is Robinhood giving me free margin? As a perk, and as a little free trial to hopefully get you to regularly use even more margin and thus pay them interest. They paid out a lot of money for those retirement asset bonuses. They added over $4 billion in assets. Times 3% is $120 million! From Marketwatch:

Robinhood has seen a significant increase in assets under management in 2024. Customers transferred over $4 billion in retirement assets from brokerage competitors between January and April of this year, with transfers averaging over $90,000 per customer. With account balances that big, some of these more seasoned investors may be used to using more advanced tools, like margin investing, and competing brokerages.

Robinhood attributes this recent growth to its 3% retirement match and 1% deposit boost promotions that were active at the start of this year. Those two programs meant Robinhood would essentially pay people to transfer their assets into Robinhood, and keep them there.

Now that Robinhood has those customers on its platform and signed up for its Robinhood Gold paid subscription service, it has to convince them to stay with the brokerage.

They do have some relatively low margin rates. From their press release:

I’m not sure I’ll keep doing this, but I’ll try it out for a couple months. I deposited a little over $2,000 of new cash into my existing taxable brokerage account (which previously just had a bit of stocks from past bonuses) and put in a limit buy order to 20 shares of SGOV, which is an ETF that holds short-term US Treasury Bills.

The share price of SGOV is usually around $100, depending on how much interest has accumulated in the NAV (net asset value). The share price of SGOV rises steadily until the beginning of the month when it makes a distribution. Here’s the SGOV dividend history. You could probably use fractional shares, but those use market orders which are usually just fine here, and I’m old-fashioned and prefer the control of limit orders. The bid/ask spread of SGOV is usually very tight, most often just $0.01. Screenshots below. (Note that I placed these orders sometime in late May 2024, as this post has been languishing as an unfinished draft for a few weeks…)

As noted, I can check to see how much margin I’m using by navigating to “Investing” and then “Buying power”. Right now, the SEC yield of SGOV is roughly 5.25%, so I’m earning ~$8.75 of interest each month on $2,000 (exempt from state/local income taxes). I haven’t used every penny of available margin since I bought whole shares, but I could with another dollar-based fractional share purchase. Many others have pointed out that even with $1,000 of free margin this can offset much of the Robinhold Gold fee of ~$5 per month. Just be sure to avoid the trap of thinking you can reliably make easy money with options trading, with or without margin.

Filed Under: Deals & Offers, Investing //
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