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 //

Best Interest Rates on Cash Roundup – June 2024

Posted on June 13, 2024 // 2 Comments

Here’s my monthly roundup of the best interest rates on cash as of June 2024, roughly sorted from shortest to longest maturities. There are lesser-known opportunities available to individual investors, often earning you a lot more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 6/12/2024.

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 cash access 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.
  • CIBC Agility Online has a 12- and 13-month CD at 5.36% APY ($1,000 min). Reasonable 30-day penalty if you withdraw your CD funds before maturity.

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

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.27% (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 5.34% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 5.16% 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 6/11/24, a new 4-week T-Bill had the equivalent of 5.35% annualized interest and a 52-week T-Bill had the equivalent of 5.16% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.26% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.21% 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 5.15% 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.

  • 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 5.03% 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 4.70% 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. 4.33% 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 6/12/2024.

Photo by micheile henderson on Unsplash

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

Merrill Edge Brokerage: Best High Interest Rate Options on Cash (5%+ APY, Updated May 2024)

Posted on May 22, 2024 // 39 Comments

Updated May 2024 with refreshed rates, new Preferred Deposit online initial deposit option, lower $1 minimum on money market funds. Merrill Edge is a self-directed brokerage arm of Bank of America and Merrill Lynch. They are a decent broker overall, but honestly the only reason I keep my account open with them is to qualify for their Preferred Rewards Platinum tier, which allows me an effective 2.6% flat cash back on “everything” credit card (offsets any travel purchase) as long as I maintain a Merrill Edge brokerage account with at least a $100,000 balance (even if just buy-and-hold Vanguard ETFs).

Unfortunately, the interest rate paid on their default cash sweep option is horrendous. They seem to have learned from Bank of America that lots of people don’t pay attention and they can earn a lot of easy profits paying 0.01% APY when you can earn 5%. Not very customer-friendly, but “net interest margin” is a huge source of profits. However, if you are motivated enough (as my readers tend to be), then you can stay at Merrill Edge and still do a lot better. Here is a summary of all the options available if you do want to keep your cash there.

Manually sweep your idle cash out. If you have a BofA checking account, you can perform instant transfers from your Merrill Edge cash balance into your BofA account. Then I simply initiate (“pull”) money out via a high interest savings account. This is a bit tedious, but most of my cash shows up during predictable periods (quarterly dividends).

Current rate sheet. You can always check current interest rates by scrolling to the bottom of any Merrill Edge page and clicking on the blue link “Deposit Account & Money Fund Rates”. Right now it links to this PDF.

Default cash sweep. Your default cash sweep interest rate is the one for “Merrill Lynch Bank Deposit Program – Tier 1 (<$250,000)". As of 5/15/24, it is a sad, sad 0.01% APY. This is a FDIC-insured cash sweep. The bad news is that you can’t change it to automatically sweep to anything else right now. The good news is that there are some other options available if you are willing to do a bit of work.

Preferred Deposit. The first page of the rate PDF only includes FDIC-insured options. You’ll note the highest rate is something called “Preferred Deposit”. As of 5/15/24, it is a much more competitive 4.71% APY. In order to use this option, you must open it with at least $100,000 in cash. However, once you establish that $100,000 position, you can then go below that amount while still maintaining future access (subsequent transactions have a $1,000 minimum). However, this is not a sweep (nothing goes in or out automatically). Here is a detailed product PDF.

To initiate this option, you can either call them up at 877.653.4732 or place an order online. To find this option the website, go to “Research” > “Mutual Funds”, and then “Cash Management Solutions” in the secondary menu. If you scroll all the way to the bottom, you should find the option to deposit. See screenshot below. Thanks to reader Bob for the tip.

This is a non-sweep product – an order must be entered for all transactions (deposits and withdrawals). Please contact your representative for additional information.

Treasury bills (auction and secondary). You can buy US Treasury bills and bonds directly through the fixed income desk. You can place either an auction order for a “new” T-Bill or buy them on the secondary market. Technically, there is no commission for online orders and a $29.95 fee per broker-assisted order. However, they don’t allow online orders for new auctions, so effectively it costs $29.95 per auction order. You can buy online on the secondary market with no commission, but there will be bid/ask spreads and possible quantity minimums based on the available inventory.

Money market mutual funds. If you scroll down to the second page of the rate PDF, you will find a list of money market mutual funds. These are not FDIC-insured, but they are still regulated by the SEC and required to hold very safe investments of a very short duration.

You can place trades on money market mutual funds online. You must select “Mutual Funds” from the “Trade” Tab drop down menu, and then enter the fund symbol you are interested in. Many of these are institutional class shares, but Merrill now allows access with a minimum investment of only $1.00 (used to be higher). Here are some examples.

  • BlackRock Liquid Federal Trust Fund – Institutional Class (TFFXX*). SEC yield of 5.17% as of 5/15/24.
  • BlackRock Liquidity Funds: TempCash Fund – Institutional Class (TMCXX). SEC yield of 5.32% as of 5/15/24.
  • BlackRock Liquidity Funds: Treasury Trust – Institutional Class (TTTXX*). SEC yield of 5.18% as of 5/15/24.

* I chose these funds also because they hold a high percentage of US Treasury bonds, and interest on US government obligations is tax-exempt from state and local incomes taxes. The percentage varies, but in 2023 it was 98.65% for TFFXX and 94.07% exempt for TTTXX (source). This can increase your tax-effective yield significantly.

Again, these money market mutual funds can’t be set as an automatic sweep; you must manually move money in and out of the product. This also means that if you want to for example buy new shares of stock, you would need to first put in an order to sell your money market mutual fund shares into cash (in order to have the funds available to buy that stock). The system won’t be able to automatically sell your fund. You’ll have to coordinate settlement times if buying stocks and/or ETFs. Finally, note that these options are for taxable brokerage accounts. IRAs may have more limited options. There are also some additional federal and/or state tax-exempt municipal money market fund options available.

Buying an outside ETF. You can also use your free stock trades to buy an ETF that is close to cash (ultra-short duration, high-quality bonds). These will not be FDIC-insured and carry a bit of duration risk, but if your ETF holds T-Bills then those are also fully backed by the US government. Here are a few ideas (with rates as of 5/15/24):

  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.27% SEC yield and effective duration of 0.17 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.20% SEC yield and effective duration of 0.07 years.

Bottom line. Merrill Edge has a default cash sweep option with a very low interest rate. If you have significant assets with them, you might want to call your rep and tell them your opinion and try to spark a change. Otherwise, I detail your available options if you want to keep your cash at Merrill Edge and earn a much higher interest rate.

Filed Under: Investing //

Morningstar Asset Class Correlation Charts 2024: 20-Year Historical Matrix

Posted on May 16, 2024 // 2 Comments

Morningstar has published their 2024 Diversification Landscape Update (direct link to PDF), another useful whitepaper for DIY investors that looks closer at the correlations between different asset classes. In their Key Takeaways, they note the quick turnaround from “The Classic 60/40 Portfolio is Dead” articles at the end of 2022 to “The Classic 60/40 Portfolio is Back!” at the end of 2023.

After a dismal year in 2022, the plain-vanilla version of a 60/40 portfolio (made up of US stocks and US investment-grade bonds) gained about 18% in 2023. Diversifying into other asset classes generally led to lower returns.

This marks a reversal from 2022 when portfolio diversification was a net positive. However, the basic 60/40 portfolio, composed of US stocks and high-quality bonds, has been tough to beat over longer periods. A 60/40 portfolio improved risk-adjusted returns versus an all-stock benchmark in more than 87% of the rolling three-year periods starting in 1976.

A potential benefit from owning multiple asset classes is that the lower the correlation between asset classes (the less they move in the same direction), the greater the reduction in volatility you get by combining assets. As long as you combine asset classes with correlations below 1 (perfectly correlated), you get some degree of volatility reduction. (See top graphic.) You can also see that the volatility reduction benefit mostly occurs within the first few asset classes; you don’t need 10 of them.

As you can see from the 60/40 Key Takeaway, the catch here is that correlations aren’t always stable. We have to look for longer historical trends with evidence that it will continue. Here are a few selected charts from the research paper.

T-Bill and Chill. Over long periods, US Treasury bonds have a lower average correlation to US stocks than a Total Bond index that includes investment-grade corporate bonds. But T-Bills (cash) get rid of the interest rate risk within T-Bonds as well, which often results in T-Bills being the most reliable shelter from the storm. You might not get a handy negative correlation boost during a stock crash, but the correlation will be reliably close to zero and your principal will be ready and waiting to deploy.

International stocks offer a small diversification benefit, but are usually strongly correlated with US stocks. (Though a little less so recently.) In the end, you must have faith that international stock returns will at times exceed US stock returns for periods of time to invest in this asset class. That faith has been tested recently, but I still would rather own them than not.

Commodities and Gold. Commodities go through boom and bust cycles as part of their nature, and the correlations with US stocks can also stay high or low for years at a time. I find it all very unreliable and unpredictable. Now, Gold has shown a consistently low correlation with US stocks, which is definitely an attractive quality. I’m more concerned about the long-term returns. Again, you need to have faith that long-term average gold returns will be well above inflation.

Long-term average correlations between asset classes. At the bottom of the whitepaper, don’t miss the charts which include correlation matrixes between major asset classes over the last 1, 3, 5, 10, 15, and 20 years.

Filed Under: Investing //

2024 Berkshire Hathaway Annual Shareholder Meeting Video, Transcript, and Notes

Posted on May 10, 2024 // Leave a Comment

The 2024 Berkshire Hathaway Annual Shareholder Meeting occurred on May 4th, 2024, and while there are lots of articles offering highlights (including this one), it’s never the same feeling as tuning into the actual thing. I always find a few nuggets that mean something to me, even if just a small side remark. Warren Buffett, Greg Abel, and Ajit Jain answered questions while we felt the palpable absence of the late Charlie Munger.

CNBC again has the broadcast rights. You can find the full 7+ hour live re-broadcast on CNBC YouTube (at least for now) and they have also uploaded most of it (not all) to the CNBC Buffett Archives site. Their official transcript is not yet available, but you can find a helpful transcript from Steady Compounding or listen to the audio podcast version here. Personally, I like to listen to the audio in the car once, and then read through the transcript for the second round.

Here are a few personal takeaways and notes.

Charlie Munger tribute. The meeting started with a video tribute to Charlie Munger, but that part is not included in many of the video links. Be sure to watch it here on the full video starting at 30:34. It is a very nice and touching tribute, including many classic Charlie Munger quotes. He did things his way, all the way to the end. I always loved that Buffett and Munger genuinely had fun together. When asked about “one more day with Charlie”, here was part of Buffett’s response:

We always lived, in a way where we were happy with what we were doing every day. I mean, Charlie. Charlie liked learning. He liked, as I mentioned in the movie, he liked a wide variety of things. So he was much broader than I was.

But I didn’t have any great desire to be as broad as he was. And he didn’t have any great desire to be as narrow as I. But we had a lot of fun doing anything. And, you know, we played golf together, we played tennis together, we did everything together. And this you may find kind of interesting.

We had as much fun, perhaps even more to some extent, with things that failed, because then we really had to work and work our way out of them. And in a sense, there’s more fun having somebody that’s your partner in digging your way out of a foxhole than there is just sitting there and watching an idea that you got ten years ago just continually produce more and more profits. So it wasn’t, you know, he really fooled me, though. He went to 99.9 years. I mean, if you pick two guys, you know, he never publicly said he never did a day of exercise except where it was required when he was in the army.

He never did a day of voluntary exercise. He never thought about what he ate. You know, we started every day, and Charlie had. He was interested in more things than I was, but we never had any doubts about the other person, period. And so if I’d had another day with him, we’d probably have done the same thing we were doing the earlier days and we wouldn’t have wanted another.

The only book available at their on-site bookstore this year was the new 2023 edition of Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger.

Current Berkshire Hathaway stock price is close to intrinsic value. Berkshire’s cash pile keep growing, and sometimes it buys back shares when Buffett thinks it’s a good deal for existing shareholders. Right now, it seems like Buffett thinks it is only slightly undervalued to intrinsic value. Historically, buying BRK when BRK buys a lot of BRK has been a pretty good bet. (Say that three times fast!)

And our stock is at a level where it adds slightly to the value when we buy in shares. But we would. We would really buy it in a big way, except you can’t buy it in a big way because people don’t want to sell it in a big way, but under certain market conditions, we could deploy quite a bit of money in repurchases. And as you’ll see on the final slide, we have bought it in the last five years. We can’t buy them like a great many other companies because it just doesn’t trade that way.

Buffett sees higher tax rates as likely in the future, at least for corporations. When asked why he trimmed his position in Apple stock, Buffett (as he often does) redirected the question a bit to taxes.

We don’t mind paying taxes at Berkshire, and we are paying a 21% Federal rate on the gains we’re taking in Apple. And that rate was 35% not that long ago, and it’s been 52% in the past when I’ve been operating. And the government owns. The Federal government owns a part of the earnings of the business we make. They don’t own the assets, but they own a percentage of the earnings, and they can change that percentage any year.

And the percentage that they’ve decreed currently is 21%. And I would say with the present fiscal policies, I think that something has to give, and I think that higher taxes are quite likely, and the government wants to take a greater share of your income, or mine or Berkshire’s, they can do it. And they may decide that someday they don’t want the fiscal deficit to be this large, because that has some important consequences, and they may not want to decrease spending a lot, and they may decide they’ll take a larger percentage of what we earn and we’ll pay it.

[…] And if I’m doing it at 21% this year and we’re doing it at a higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year.

Living a good life. As usual, he dropped some good general life advice.

But the opportunity in this country is basically limitless. When you think of going back not that many centuries, if you were going to be a shepherd or something like that, 100 years from now, your grandson was a granddaughter, was going to be a shepherd, nothing really happened. And what has happened in the last 200 years with the combination of the industrial revolution, whether it’s science or education or health, you name it. We are so lucky to be born when we were the people in this room, and many of us were lucky enough to be born in the United States as well, that you.

You’re entering the best world that’s ever existed, and you want to find the people to share it with and the activities to participate in that fit you. And if you get lucky, like Charlie and I did, you find things that interest you young. But if you don’t find them right away, you keep looking. And I always tell students to take the job. I mean, find the job that you would like to have if you didn’t need a job.

And sometimes you can find that very early, and sometimes you go through various experiences, but don’t forget what you actually are trying to do, and there’s no place to do it like this country. Find the person that you like to share your life with in many cases. And, you know, sometimes you get lucky into that early, and sometimes you make mistakes.

But I would try to, in a very, very general way, I would try to figure out how you’d want to look back on your life and think about yourself and start today to go on the path that leads to that goal and expect some difficulties along the way. But if you’re thinking that way, you’re more likely to get there.

Keep trying, expect bumps, appreciate what you already have, and don’t let envy ruin it all. This Munger quote from the 2023 Daily Journal shareholder meeting sticks in my head: “I can’t change the fact that a lot of people are very unhappy and feel very abused after everything’s improved by about 600% because there’s still somebody else who has more.”

Berkshire shareholders as both savers and givers. Buffett reinforced the stereotype that Berkshire Hathaway shareholders are different and tend to be relatively frugal, practical, and not focused on outward appearances. Not only did a shareholder donate $1 billion dollars to a medical school in the past year (such that tuition will be free in perpetuity), but it didn’t even require them to change the name of the school. Another BRK shareholder just anonymously donated $500 million.

The next generation is fully in place. My overall impression was that while Buffett is still the top guy, with the passing of Charlie he has psychologically already passed the baton to Greg Abel and Ajit Jain. Abel is who all the subsidiary business managers deal with on a daily basis. Ajit is fully in control of the insurance side. Buffett basically said that Berkshire should be good for the next 20 years and he’s done the best he can (knock on wood).

We’ve really got the problem solved for the next 20 years unless something untoward happens. And if something untoward happens, then. Then the directors need to find, probably within our own organization, somebody that they’ve got confidence in to maintain the special advantages we have over another 20 years period. There’s various things that are low probabilities, but you still have to think about them, and we are in that position now. Now, if you asked me whether.

If something happened to Greg today, everybody says, don’t travel on the same plane. The thing to do is not travel in the same auto. Planes don’t go down that often. Autos crash all the time. I’ve seen all these corporate policies on that, which are kind of crazy when you think about the real risk.

But in any event, Greg is going to have to tell the directors about what if something happened tomorrow. He has to tell the directors about what should be done if anything happens to him. And that’s not an easy thing to do, and I don’t have.

Buffett will still be there to make sure that they properly pounce during the next crisis when everyone is scared but Berkshire. I get the sense that is really the only thing left that would get him really excited: the possibility of a future big moment with lots of buying opportunities. A few last big brush strokes for his masterpiece.

And that’s sort of the story of Berkshire. We’ll try to increase operating earnings, and we will try to reduce shares when it makes sense to do so. And we will hope for an occasional big opportunity. And we’re quite satisfied with the position we’re in.

Filed Under: Inspirational, Investing //

Best Interest Rates on Cash Roundup – May 2024

Posted on May 8, 2024 // 6 Comments

Here’s my monthly roundup of the best interest rates on cash as of May 2024, roughly sorted from shortest to longest maturities. There are lesser-known opportunities available to individual investors, often earning you a lot more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 5/8/2024.

TL;DR: Mostly only 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.

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

  • 5.26% APY ($1 minimum). Raisin lets you switch between different FDIC-insured banks and NCUA-insured credit unions easily without opening a new account every time, and their liquid savings rates currently top out at 5.26% APY across multiple banks. See my Raisin review for details. Raisin does not charge depositors a fee for the service.
  • 5.36% APY (before fees). MaxMyInterest is another service that allows you to access and switch between different FDIC-insured banks. You can view their current banks and APYs here. As of 5/8/24, the highest rate is from Customers Bank at 5.36% APY. However, note that they charge a membership fee of 0.04% per quarter, or 0.16% per year (subject to $20 minimum per quarter, or $80 per year). That means if you have a $10,000 balance, then $80 a year = 0.80% per year. This service is meant for those with larger balances. You are allowed to cancel the service and keep the bank accounts, but then you may lose their specially-negotiated rates and cannot switch between banks anymore.

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

  • The top rate at the moment is at 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. Raisin has a 9-month No Penalty CD at 5.10% APY with $1 minimum deposit and 30-day minimum hold time. 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.
  • CIBC Agility Online has a 13-month CD at 5.36% APY ($1,000 min). Reasonable 30-day penalty if you withdraw your CD funds before maturity.

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

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.26% (changes daily, but also works out to a compound yield of 5.39%, 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 5.24% 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 5/7/24, a new 4-week T-Bill had the equivalent of 5.37% annualized interest and a 52-week T-Bill had the equivalent of 5.15% 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 5.21% 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.
  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization.
  • 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 5.15% 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.

  • Credit Human has a 59-month CD at 4.70% APY. 48-month at 4.70% APY. 35-month at 4.75% APY. 23-month at 5.30% APY. 1-year at 5.05% 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 4.50% APY. 4-year at 4.50% APY. 3-year at 4.50% 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 4.60% 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 4.50% (callable: no, call protection: yes) vs. 4.47% 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 5/8/2024.

Photo by micheile henderson on Unsplash

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

Robinhood ACAT Bonus: 1% of Taxable Brokerage Assets Transferred w/ No Cap, 2-Year Hold

Posted on May 7, 2024 // 14 Comments

Offer is back, new deadline is June 28th. Robinhood has brought back their 1% ACAT Transfer bonus of a flat 1% of the transferred amount with no cap. That means a transfer of $10,000 in asset value from an external brokerage account will earn a $100 bonus, a $100,000 transfer will earn a $1,000 bonus, and a $1,000,000 transfer will earn a $10,000 bonus. The bonus should arrive about 2 weeks after the completed transfer, but note that you must keep the assets there for 2 years otherwise they will claw it back. Here is the full PDF fine print. Here is the online FAQ.

For eligible Robinhood customers who complete an ACATS transfer within the Offer Period, Robinhood will deposit 1% of the net transferred asset value to the customer’s Brokerage Account, subject to a two-year earn-out as discussed below. “Net transferred asset value” is the total value of the initiated ACATS minus the value of any outflows from April 30, 2024 at 12:00:00 AM ET until the ACATS is settled, excluding outflows that led to a chargeback. The Bonus will be provided within approximately two weeks from when the customer’s eligible ACATS transfers are completed. The Offer Period begins April 30, 2024 and ends June 28, 2024; however, Robinhood may change these dates at any time without notice. Transferred assets are eligible if they are initiated during the Offer Period.

As with all similar ACAT transfer offers, you can transfer over your existing stock holdings and the cost basis should also transfer over with no tax consequences. You don’t have to move cash. You just keep your same old shares of Apple or Coca-Cola or S&P 500 index ETFs or whatever at a different broker. If you already wanted to hold cash, you could also own things like Treasury bill ETFs or ultra-short term bond ETFs and earn interest on top of the bonus, but in that case this bonus isn’t that great because you’re only getting 1% spread over two years.

I’ve explored some of my Robinhood concerns during their 3% IRA transfer promotion. Here is some of that same information copy-and-pasted here.

Robinhood doesn’t allow all asset types, so you can’t own mutual funds, individual bonds, and closed-end funds. Robinhood is not a full-featured brokerage firm. Here is the full list of what is and isn’t allowed. They support the following:

  • U.S. exchange-listed stocks and ETFs
  • Options contracts for U.S. Exchange-Listed Stocks and ETFs
  • ADRs for over 650 globally-listed companies

This means that if you want to move your balance over to Robinhood, you will have to sell any mutual funds (or convert them to ETFs), individual bonds, brokered CDs, and so on. I converted my Vanguard mutual funds to ETFs, and it took 1-2 business days.

SIPC insurance limits and excess insurance. Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which steps if a broker fails. Robinhood has also purchased additional excess SIPC insurance on the private market. From the Robinhood site:

Robinhood Financial LLC and Robinhood Securities, LLC are both members of SIPC, which protects securities for customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

We’ve purchased an additional insurance policy for Robinhood Markets, Inc., Robinhood Financial LLC, and Robinhood Securities, LLC to supplement SIPC protection. The additional insurance becomes available to customers in the event that SIPC limits are exhausted. This additional insurance policy provides protection for securities and cash up to an aggregate of $1 billion, and is limited to a combined return to any customer of $50 million in securities, including $1.9 million in cash. Similar to SIPC protection, this additional insurance doesn’t protect against a loss in the market value of securities.

From SIPC.org::

SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.

Is SIPC a U.S. Government Agency?
No. SIPC is not an agency or establishment of the United States Government. SIPC is a non-profit membership corporation created under the Securities Investor Protection Act.

My brokerage firm has excess SIPC insurance. How does that work?
Excess SIPC insurance is insurance provided by a private insurer and not by SIPC. The insurance is intended to protect brokerage customers against the risk that customers will not recover all of their cash and securities in the proceeding under the Securities Investor Protection Act (SIPA). Under many of these policies, customer eligibility for recovery is not determined until after the SIPA liquidation of the customer’s brokerage firm has concluded and the amount of the customer’s recovery in that proceeding has been established.

Some people have concerns that Robinhood is a smaller company with a history of questionable judgment and violating securities regulations. Robinhood holds the current record for highest FINRA fine ever. As a result, you may choose to limit the amount transferred to Robinhood to under $500,000 in assets (and $250,000 cash) per eligible account type. Here are the different “capacities”. For example, you could have an individual taxable account, a traditional IRA, and a Roth IRA at Robinhood and each one would have $500,000 in coverage. I will be staying under these limits as well, but my IRA balance simply isn’t that big anyway.

Note that if you opt-in (or don’t opt-out) to Stock Lending during the account transfer or account opening process, any securities that are loaned out are no longer protected by the SIPC. This is usually offset by a promise of 100% collateral, but that assumes trust that Robinhood will post that collateral. See Gamestop short squeeze for a very recent example of Robinhood… not posting enough collateral. Therefore, I also don’t recommend Stock Lending with Robinhood.

Robinhood limitations on beneficiaries. Robinhood only allows a primary beneficiary who is an adult. That means no trusts, no minors, and no “per stirpes” instructions. See article.

Whom can I designate as my beneficiary?
To be eligible as a TOD or IRA beneficiary, the individual must be a person who is at least 18 years old, a US Citizen, or otherwise be legally permitted to open a Robinhood account.

Robinhood will also reimburse your transfer fees up to $75 if you transfer at least $7,500 worth of assets. After the transfer is completed, you must contact then via the live chat function and they will reimburse you after you upload a screenshot of the fee charged.

When you transfer out eventually, Robinhood does charge a $100 Outgoing ACAT fee. Ideally, there will be another broker to reimburse that fee in the future, but who knows. Here is their full fee schedule [pdf].

Customer service tips. Robinhood does not have a traditional phone number to reach customer service. You have to go the help section, search for a topic, and then look for the “Contact Us” button at the bottom of the page (presumably after you have read the canned answer and still need help). Then you can either have a Live Chat or request a Callback where they will call you back on the phone at a later time.

Security and Privacy tips. To access these settings on the iPhone app, click on the head/body icon on the bottom right, then the three lines icon on the top left, and then “Security and privacy”. On the plus side, Robinhood supports a variety of 2FA options: SMS, Device passkeys, and Authenticator apps. Scroll down further and you can also opt out of their data sharing.

Bottom line. Two years is a longer hold period than some other broker offers, but 1% of assets is still pretty solid overall and worth considering for transferring some buy-and-hold index funds where you don’t want to move them again for a while. (For example, you might get 0.4% of assets elsewhere, but also only have to keep it there for 90 days and be free to chase another bonus afterward.) Some people may also choose to consolidate their taxable brokerage accounts at Robinhood if they already took advantage of the 3% IRA offer. The deadline for this revived offer is currently June 28th, 2024. The bonus value will most likely be reported as taxable income on a 1099-INT as interest earned, but may also end up as 1099-MISC income. (I am reminded again how good the 3% IRA offer was, as the bonus was a non-taxable increase in your Roth IRA balance as compared to this 1% offer that is at best taxable ordinary income.)

Filed Under: Deals & Offers, Investing //
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