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birb_cromble  16d ago (text post)   899 thread views

Weekly Finance Thread - 2026-08-01

A weekly thread to discuss financial matters - from personal all the way up to global.

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@stolen_brawnze asked me to info dump what I've learned about fixed income over the last several months. I'm on the stationary bike and I'm getting bored, so let's go.

If anything here is wrong, please correct me and I'll update the post. I'd rather somebody tell me I'm wrong than spread misinformation.

At the highest level, I've been looking at government debt and corporate debt.

Government debt, like the name suggests, is issued by government entities. At the federal level, that includes treasuries, and below that, you're mostly looking at municipal bonds. Treasuries are considered the gold standard for low risk investing. Municipal bonds usually offer lower rates, but are are tax exempt at the federal level. In most states, they're exempt from state tax as well if the bond is issued by your state if residence as well; if you're high income or high net worth, that can be a real win.

Commercial debt is a lot more varied. Unlike sovereign nations, corporations generally don't have standing armies and taxable citizens to guarantee their loans. Instead, there are a handful of private groups that rate corporate credit. Generally, riskier companies offer higher rates to entice lenders. Safer companies can get away with lower rates, because they're probably not going to go out of business before the bond matures.

Bonds are great, because if the company doesn't default, you'll always get back your face value, but they're kind of a pain in the ass to hold individually. Bond funds offer an alternative to this, but they come with their own risks. Bond funds hold rolling collections of bonds and generally returns distributions monthly as ordinary income. Bond funds that hold significant amounts of US treasuries are usually state tax exempt.

Bond funds that hold significant amounts of municipal bonds also carry a tax advantage.

Bond funds have an average duration, which is the weighted average time it takes for a bond in the fund to recover its face value. Longer durations tend to offer better returns, but this is not always a guarantee. Longer durations also carry more risk, because the interest rate is locked into the bonds that are held by the fund. When you hold a fund at X%, it's not as attractive if the same issuer offers the same bond at X+1%. Rate increases tend to make the share price of a bond fund drop. Conversely, rate drops tend to make older bonds with higher rates more attractive, which makes the share value of a bond fund rise. If you're using a bond fund for savings, you should favor shorter durations. If you're using a bond fund for income, duration matters less because the yields tend to even out. Roughly speaking, a 1% increase in rates will cause the share price of a fund to drop by a number of percentage points equal to the fund's average duration. This is why 2021-2023 were so terrible for bonds. The fed jacked up rates seven times in rapid succession and absolutely obliterated a lot of bond funds.

On the corporate side, there are also collateralized debt funds. Collateralized debt funds hold a basket of debt (mortgages are common) and divide the returns into tranches. When everything is going well, everybody gets paid, with the lower tranches getting a higher rate. When things go shit wise, the tranches might not get paid. The highest tranche is AAA, and these funds tend to be very safe by the standards of corporate debt.

Tickers

Ultra Short term treasuries: I like VBIL. SGOV is also good. Average duration is about a month, so the share value is extremely stable. You can see a clear sawtooth pattern every month as the value builds up before a distribution. I like this as an enhanced savings account that has state tax advantages.

Short term treasuries: SCHO and VGSH. I haven't found a particular use for these. Average duration is just shy of two years.

Weird outliers: Bondbloxx is doing interesting under XHLF and XONE. These offer a six month and one year duration, respectively. I'm also looking at BOXX, which is doing some sort of synthetic fund that converts returns into capital appreciation for tax efficiency. I'm still not sure how that works or how it's legal.

Collateralized debt: My go to here is JAAA. It has a short duration (about 2.5 months right now) and a decent return. Be aware that the distributions are considered ordinary income. If you want more return, there's also JBBB. If you want alternatives there's also PAAA and CLOA.

Short term corporate debt: I like VUSB and I hold it as ballast in my HSA. It has an average duration of about 1.9 years.

I want to put my balls on the table: If you're bold, there's FALN. FALN is a junk bond fund for companies that have lost their investment grade rating. The thesis for the fund is that companies that were once investment grade are more likely to get their shit together and pay you than their bond yields would suggest.

Municipal bond funds: Not every state has its own municipal bond fund. If you want a national grab bag for the federal tax advantage, there's VTEB. For particular states, California has CMF. New Jersey has FNJHX. Pennsylvania has FTPA. New York has NYF. You'll probably need to check your own state of residence. These are only usually worth it if you can find one for your own state or if you're fuckin' loaded and need to keep your tax burden down. Municipal bond funds tend to have a very long duration because they tend to fund large projects.

I don't want to think about this shit: BND or BNDW. The former is a snapshot of the whole US bond market. The latter is the whole global bond market.

I am very patient: EDV is a treasury ETF with an average duration of twenty God damned four years. The 30 day yield is 5.1% though, so if you're looking for income it's not bad.

Other notables:

Bogleheads like USFR, which is a fund that holds floating rate notes instead of fixed rate treasuries. It has a slightly better 30 day SEC yield than SGOV.

JSI was something of a fixed income darling earlier this year, but it's been having a hard time, having lost 2.68% of its share price YoY. It does have a 5.83% SEC yield, however.

VTIP is interesting. It holds Treasury inflation protected securities. TIPS have a base rate, then a second additional rate that varies based on inflation. In theory, it should help you hold on to value if inflation spikes. In practice, the government lies about inflation and even if they didn't you'd get taxed on those returns. I'm not sure how it would fit into my portfolio.

Duration looks a little off to me. A better definition would be the interest rate sensitivity for a given bond that would be equivalent to a 0 coupon bond maturity X years into the future. X is called the duration.

But for an average guy the definition used is good enough.

Amazing post.

Thanks for pointing out VBIL. I wish it were pegged around $100, but it seems like it would he useful to use with SGOV, somehow, to avoid all these SGOV wash sales that are littering my 1099 every year.

I actually use SGOV, VBIL, and USFR together in my Fidelity Cash Management Account as "buckets" for keeping track of my short term saving goals.

That's funny. I use SGOV for my Roth IRA contributions for the upcoming year, and VBIL for general savings.

I'm also looking at BOXX, which is doing some sort of synthetic fund that converts returns into capital appreciation for tax efficiency. I'm still not sure how that works or how it's legal.

Funny story...

Well, I guess I can stop looking at that.

Usual disclaimers, etc., etc.

U.S. Treasuries

If, for some reason, you do want to hold individual Treasuries, and you are US based, you can do it through TreasuryDirect. Slightly clunky interface, but less annoying than other forms of individual bond holdings. You can also convert old paper issues there so you can ACH transfer and get a 1099 electronically. TIPS were mentioned, but individual investors also have access to a small amount of I Bonds.

If you ever do get into weird individual bond trading, be careful of bearer bonds, which can be a real PITA to deal with.

If I have a "slightly more than one year" timeframe (1 year, 5 months) before an expense, what's the best play? 1 year CD, 1 year bond, wherever I can find the best yield? Looking for "as close to guaranteed as possible, but definitely won't need the money before then so liquidity isn't a concern".

I personally have no risk bucket for our household’s finances between “emergency fund” and “retirement fund.” Maybe it would be optimal to create one, but having a sufficiently big emergency fund obviates most need for some other expense planning vehicle.

I don't even have an emergency fund. Other than my credit card's "12 month no interest financing on my credit card, with a 4% fee up front"

Once you have enough wealth and some discipline you don’t need an emergency fund. You can use a taxable brokerage and margin for same day payments. Fidelity even has a debit card that automates it. Or slower you can transfer to you bank account and it clears within 24 hours for payment.
If you have 300k in taxable brokerage you should have no problem getting 30k for an emergency and that’s without needing to do a taxable event immediately.

Reading this finally jolted loose a thing in the back of my brain. Almost a year ago now, I stashed this link with a note that I should look into the scheme at some point. Scroll down to the section titled "Box spreads".

...now having spent a few minutes looking at it again, a couple comments. a) If you don't do it right, you can really screw yourself over. There's a legend of wallstreetbets who did this, of course. b) There's now a FinTech company that specializes in doing this for you. An LLM tells me that they get paid by adding an extra ~0.5% to your rate, which is probably worth it if you don't feel like you really know what you're doing. c) I have no idea how long it would take to execute. From what I can guess from what I've read so far, they use a browser extension (a little sketch) to actually put the trade together in your existing brokerage account, so presumably, the actual execution of it all is extremely quick. But it looks like you probably need to do some setup in advance.

My emergency fund is effectively broken up into two categories: "unexpected same day check needed" (admittedly crazy unlikely), and "stock market's crashed and I lost my job and need to keep paying the mortgage."

When I first started investing, I learned that you can withdraw contributions from Roth IRAs at any point in time, tax/penalty-free. Also, if you do withdraw, contributions are withdrawn first. I reasoned that the types of emergencies that I would want to be prepared for with an emergency fund were less of the type "the market will crash", and more of the type, "I'll have a lumpy expense, like having to replace a car." Of course, it is possible for both such things to happen at the same time, but probabilities. My conclusion was that I was going to retain a very moderate amount of cash flow buffer (could be viewed as extremely small compared to the emergency fund numbers I see others throwing around), and that I could manage to have my 'emergency fund' essentially be in my Roth IRA. Sure, it wouldn't be great if I actually had to withdraw some, but the downside is just that I would "lose" some prior years' room of possible contributions, which I would necessarily lose if I wasn't putting money into the Roth IRA in the first place!

Times changed, my life circumstances changed, but I've mostly still happened to find myself not really needing an emergency fund. Of course, other people have different circumstances where it would make more sense.

We recently got a new roof, and it was led by a neighbor who got a bunch of neighbors to agree to go with the same roofer, to entice the roofer to give us all a discount.

From beginning to end, the turnaround for the whole affair was about a week, from idea to having a brand new roof. We also got a double-digit percent discount on top for not financing; we wired the full amount on the day of performance.

If your emergency Roth IRA plan can move money for you that fast, then it seems fine.

I thought about it, even considered mentioning the roof example exactly in my prior comment. What I would have said was something like, "I didn't own a house, so it wasn't like I had to worry about suddenly replacing a roof." Life circumstances.

Life circumstances now provide, uh, other reasons why I'm not super concerned about having much of an emergency fund.

My understanding, corroborated by some people in previous threads, is that you generally want the longest duration you can manage without going over the date when you need it.

A 52 week treasury bill coupon equivalent is over 4% right now. That's not awful if capital preservation is a big deal. To get higher than that, you'd be looking at commercial debt like JAAA, and even then you'd have to consider the tax implications.

That's the way I was leaning. I don't think I've actually ever bought a T-bill before, and I have to say, Fidelity's page for them looks needlessly complicated, to the point TreasuryDirect (archaic as the site may be) is looking more tempting for a purchase.

If you're feeling bold, there's also XONE

Petition for birb cromble to post a summary of all that he’s learned while researching fixed income, including exchange symbols.

Are you sure you want that kind of autism?

.... have you looked at the rest of the people on this site?

Thoughts on /r/overemployed? Working two remote jobs and getting two salaries seems too good to be true.

Has anyone here tried it, or know anyone who's done it?

Think it's hard in the current economic moment to get multiple good remote gigs, though I guess that depends on industry/seniority.

Had friends who managed it at scale during the COVID period and was great then but lot more stuff facilitated it.

My employment contract clearly says it'd be a fraud. Criminal career is not for me - it only worth it if you really good at it or have very good connections, and I am neither.

Looking for some General Advice for Retards Dummies on going from renting to owning…

I live with my fairly-recently-married wife, renting a condo in a major city, and we’ve been looking at options to buy property instead. Well, as luck would have it, our landlord just recently reached out offering to sell us this very condo. His asking price isn’t a great deal, but it’s a fair one and I’m confident the unit will appreciate over time, probably significantly (aside from the general housing trend, it’s in a convenient and fast-gentrifying location). Based on what I’ve seen so far, we wouldn’t get this good of a place and this good of a location any other way.

So, I’m thinking we’re going to go through with it. My father in law has offered to gift us a frankly ridiculous-to-me sum to use as a down payment (in his half-joking words, “think of it as coming from your inheritance”) because he’s very eager for us to have a real asset on the books, so I’m not too worried about balancing monthly payments against the length of the mortgage, although I would love to hear what people think about that. One concern on my mind is that we will eventually need to sell and move to a proper house further out of the city, I assume before the mortgage is paid off. We’re in our late 20s and intending to have our first kid within the next couple of years. This place is big enough and located well enough to be suitable for at least one kid up through toddler-age (and in fact there are a number of families with young kids in the building) but for a 2nd or 3rd (or just an older kid) we will certainly want an upgrade. If anyone has gone through that process I’d be curious to hear as well.

Basically I’m just looking to hear the general thoughts of motteposters who have gone through this already. Also curious about the expected etiquette for negotiation.

What is the condo square footage and total bedrooms? Do either of you work from home and need a bedroom office? Do you plan for kids, and how many? If you buy a condo with only 2 bedrooms and need a dedicated office space bedroom, then there's no bedroom for a baby to sleep separately. Or do you plan to cosleep your baby, negating space needs for some time?

Fixed 30yr mortgage rates have been going up sharply and fast since March. I've noticed some 7/1 ARM mortgages which have a typically lower rate for 7 years then reset to a market rate in year 8. If you plan to buy and have a mortgage, but are sure you will leave in less than 7 years, then the ARM mortgages with temporary fixed rates can be a useful tool to save money.

Also umm, there's also the "take the big gift downpayment from your FIL while he is able and willing to offer it". Surely it covers the real estate broker and transaction fees with some left to spare. But you can also look at SFH or other condos if the gift is big enough.

Is the sped-up inheritance enough to get or substantially pay for a single family home? At least in my city, they outperform condos substantially. And as someone who has done both urban SFHs and condos, I simply cannot imagine raising a child in the condo. I know people manage it, but it seems miserable.

I would only go with the condo if it were a genuine good deal (say, looking at comparables 10% off the market rate).

I would also do a lot of research into the HOA. Condo HOAs can have a lot of landmines, and you've probably been fairly insulated from it as a renter.

Also curious about the expected etiquette for negotiation.

Be polite, of course, but you must negotiate for your and your future family's wellbeing. If your preexisting relationship with the landlord means you're uncomfortable playing hardball, that's another reason to avoid the condo. What price you settle on is very likely the difference between a good and a bad investment.

Based on what you are saying I would run from the trade. I may change my mind if you are in an okay second or third tier city.

I hate the pricing in all the tier 1 cities right now. The city I am in the most in the States for the type of condo I am assuming you are describing the rent price would be about 3500-4k a month and the costs to own after 20% down would be 7-8k a month. Those numbers do not work to expect appreciation.

You just laid out a plan to move within 5-7 years. To sell the place you are buying you will pay 5% broker commission (most likely still), transfer taxes, appraisal, etc. It runs about 7% all-in for a lot of cities to sell a property. The first 7 years of a mortgage payment the principle pay down is basically 7%. So all the equity you paid in will disappear to selling costs.

All the real estate association publications on appreciation are basically bullshit and dominated by a few geographically and regulatory restricted places. I could do a long post picking apart issues with every real estate index but the short part is they all ignore key factors even the ones that only do repeated sales.

At your age you want to buy property. It feels like the “adult” thing to do and the next stage of life. Condos also are a very hard area to actually make money on. Current pricing is awful to buy in most markets unless you assume 30 year rates drop 300 bps.

With condos specifically, look at HOA dues, reserves, info about special assessments (last time one was done, any plans to have one in the near future), and if HOA outsources management. I cannot stress this enough - HOA makes or breaks value of any condo. There's so many ways HOA could be mismanaged, from a few motivated boomers on the board strongarming to suppress monthly dues, which causes reserves to be insufficient a decade later, to hiring a 3rd party management company that charges you $80/hr any time you email HOA with a question or hires the most expensive person (because they get kickback) every time ANYTHING needs to be done. Once I've seen an owner have a huge legal battle with HOA - guess where the money comes from to pay those legal fees? Also look at renting rules, a lot of HOAs, especially the ones with a lot of boomers on the board, have rental caps (certain % of all units can be rented out at any time) - that affects the value significantly since a lot of people buy condos as an investment and it's a trash investment when you're beholden to HOA on whether you can rent out your own property.

For condos specifically, find out how much they have in the reserve fund and if they've been skimping on any maintenance. I have a friend whose condo fees have been rising quite a lot the last few years because they don't have enough reserves to replace the building's old roof and it's getting harder and harder to get insurance to still cover the building because of it.

Me and my wife were in a similar situation, with a flat in the city and planning to have our first child. The financially responsible thing would have been to have baby #1 in the city, and then moved out to the suburbs when #2 came along.

In the end, we moved out to the suburbs first. It wasn't the most economical decision, but I'm glad we made it. It's very comforting to be able to say 'this is our house, we own it, and we're probably going to live here forever'. Moving was stressful enough with my wife being pregnant at the time, it would have been harder if we'd had a baby or toddler I think.

But it really depends on how much you like the condo. If you weren't living there and were just viewing it as a potential buyer, is it the one you would go for?

Owning a home is great. I am glad I do, most days. It is not a good financial choice.

For example: since I bought my house 4 years ago, it has gone down ~10% in real dollars. Then, leverage by a factor of 5+. The market has gone up 80%. The lost market growth on my down payment alone works out to about the same amount as I've paid in mortgage etc.

Even if the math did work in favor of owning in my specific case, this is like being the smug friend who held NVDA or BTC. Not a genius, just a lucky gambler. Actually, worse: a REIT would be a better analogy for that. Owning a specific house and being happy it worked out well is way higher variance. Foundation cracks? Meth lab next door? Have fun.

OP thanks for posting these. I really enjoy the discussions.

What does theMotte think might be some good charity EA options? I'm skeptical of a lot of the EA suggestions for a number of reasons. Things that have a very direct impact, like Malaria nets, I like in theory but I worry about the downstream consequences (do we really want a lot more Africans who can't feed themselves when the global fertilizer crisis really hits). Other charities that I like in theory, like the Good Food Institute, which is working on making people's diets more plant based, seem to just be paying some CEO's salary with the donations.

Right now I'm trying to donate about 10% of my net savings each month to something that I feel is good/worthwhile. Some of this will go to the guaranteed income program I participate in in Baltimore, but I'd also like to give some money to charity whose cause I agree with and has a direct impact on the world (i.e. not just paying a think-tank salary). Some causes I care about are veganism (reducing animal suffering), environmental clean-up in the US, encouraging urban agriculture/local manufacturing in general, and second language education. Would appreciate any advice.

You should probably just start by looking at ACE recommended charities which mostly work on improving the lives of farmed animals.

As a vegetarian, I'd love it if we just stopped slaughtering and torturing animals, but the first goal is pretty remote. I'd be happy if we stopped putting male chicks in shredders, sows in cages, and so on, which are actually feasible goals.

You could easily find a local church and donate to their benevolence fund, or similar targeted fund. These are often very efficient, usually run by volunteers who donate their time to allocate funds to where they will offer real help to those who need it. But it does violate the EA precept of non-locality: a benevolence fund is much more likely to help someone local with a utility bill than save a few children on the other side of the planet.

This is a good idea. I used to give to my Catholic Church quite a bit, but I am put off by the tithe to the Vatican and the stupid spending habits of my pastor.

do we really want a lot more Africans who can't feed themselves when the global fertilizer crisis really hits

Malaria nets reduce infant mortality, and reduced infant mortality causes birth rates to drop. The only way out of the African population explosion is through it.

The Nigerian infant mortality rate more than halved over 60 years, while its births per woman barely nudged.

How about instead of “the only way to win later is to keep helping the other team score more points”-type defeatist hopium, we take the money spent on malaria nets and whatever else and pay teenaged African girls and young African women to get their tubes tied. This solution is a bit coup-complete, though.

Two things to note:

  • Most of the real terrible African nations often haven’t had censuses in decades. We can guess but don’t know too much about their populations.
  • to make the situation grimmer, the high human capital Nigerians, either in the country or outside, have close to or below replacement fertility rates. It’s the ones without an economic place in the modern economy that reproduce like crazy. This pattern is common in Africa, and was the case in LatAm in the later half of the 20th century. My Nigerian associates, who are upper class, are staunch supporters of already existing contraceptive NGOs as a result.

The international aid-NGO complex has been funding African birth control for decades, with the explicit aim of reducing African population growth. Saying 'Africans should have fewer children' isn't some edgy right-wing take, it's the mainstream left-wing position. The only movements against international aid-funded birth control have been from the second Bush administration (due to its pro-life sympathies) and from Musk's gutting of USAID.

And we should expect there to be a lag between reduced infant mortality and reduced fertility. That's what happened during the industrial revolution, and it caused Britain's population to increase. But without reducing African mortality to literal malthusian levels (which would of course lead to mass emigration to the rest of the world) the only option at this stage is to reduce infant mortality further. And there really isn't a tension between reducing infant mortality and encouraging birth control. The same maternity hospitals that keep babies alive are the ones that implant long-lasting contraceptives in women who don't want any more kids.

As to whether it's 'working', well, according to the MICS survey Nigeria's TFR dropped from 5.8 to 4.6 in a mere five years. That's more than a whole child. If that trend continues, Nigeria is set to fall below replacement in about 12 years. It probably won't happen that fast, but I'm certain we will see the country drop below replacement in 20 years at most.

And we should expect there to be a lag between reduced infant mortality and reduced fertility. That's what happened during the industrial revolution, and it caused Britain's population to increase.

Incredibly convenient how the expected lag is anywhere from zero to infinite years, such that one could claim an effect with anything from a delay of 5, to 50, to 100+ years.

As to whether it's 'working', well, according to the MICS survey Nigeria's TFR dropped from 5.8 to 4.6 in a mere five years.

This just compounds the shoddy empiricism. To the extent Nigeria TFR dropped, other countries across the world also experienced a drop in or around the same time, suggesting that the Nigerian infant mortality rate was not the driver.

So at best billions of dollars spent over 70 or so years resulted in a decrease of Nigeria's fertility rate from from ~6.0 to 4.6, while aiding its population to increase from about 37 million in 1950 to 208 million in 2020. With "wins" like these, who needs losses?

Every year where Africans outreproduce Europeans and East Asians is another year where the world is more African and less European/East Asian.

which would of course lead to mass emigration to the rest of the world

The fewer Africans there are now or in the near future, the less we have to worry about African emigration later.

Hence why I would prefer a more direct intervention on African birthrates, without relying on some speculative hopium about mosquito nets (and the adjacent).

I am violently skeptical of EA as a concept due to the events of the last several years. Between Situational Awareness, FTX, the castle debacle, the zizians, and... just the entire AI industry right now, I think setting my money on fire would result in more net good being done than giving it to anyone who is EA-affiliated.

With that out of the way, are you specifically looking for EA charities, or are you looking to maximize the utility of your charitable giving? If it's the former, I absolutely cannot help you. If it's the latter, can you explain why you're taking that approach over donating to a local charity that has a good reputation, that's close enough to scope out yourself?

One common friction point that keeps coming up in these threads is something that I can't clearly name, but seems to be the friction between one person's perceived optimal behavior and another person's risk tolerance. One person will say that they are doing something, and another person will comment that the first poster is Doing It Wrong because they believe there is a more optimal path that they could take. It's a very binary thing that seems common in the Internet in general. I think it comes from a benevolent place, but it seems like it can push people off from the topic entirely as much as it can educate them.

I've been thinking about that lately because of events in my personal life. My partner is a fairly responsible saver, but she's not really investing. She's in the upper half of her age group for net worth and doesn't have any debt, but I worry that inflation is going to eat those savings over the long term. I've gently tried to get her to consider moving some of that money into funds over the years, but for her, it's entirely too much risk. I've not really pushed on it because what she's doing is better than doing nothing, and nothing is her alternative right now.

For somebody who has that extreme level of risk aversion, what options are there that beat a HYSA? Browbeating her into equities isn't going to fly.

On a similar topic, are there "non optimal" things that you do financially, but you do them anyway?

  1. I pay ahead on my mortgage, even though the interest rate is "only" 3.75%.
  2. I hold some dividend stocks and funds, and even commit the cardinal sin of holding them in a taxable brokerage account.
  3. I don't use credit cards outside of the bare minimum necessary to keep them active.

In all three cases, it's entirely a psychological thing for me, and I recognize this. In the first two in particular, it's still better than not doing anything at all

For somebody who has that extreme level of risk aversion, what options are there that beat a HYSA? Browbeating her into equities isn't going to fly.

First, say a prayer of thanks that she's dispositionally a saver.

I'm not sure any large single changes exist which aren't going to induce a ton of anxiety, so whatever happens is going to have to be both small and prove itself to her. If you're trying to get her there specifically to combat inflation risk (likely a good idea, given Congress's bipartisan disposition toward federal spending), maybe the approach should hinge on whether or not inflation is salient to her.

If she doesn't really pay attention to it or grok the tax drag on HYSA interest, it might be possible to get her to throw the after-tax interest one year into VOO or SPY (or some other broad-market index fund) and just leave it alone alongside her HYSA for a few years, then compare the returns. It's not that high a fraction of her net worth, and importantly to her risk tolerance, it doesn't reduce the nominal value of her HYSA balance to do so. This works better if she doesn't check in with the balance often and get tempted to hit the Sell button during a dip.

If she is attentive to inflation, maybe emphasize that she's essentially paying something like 2% (HYSA nominal return * marginal tax rate) of its value, and that's a risk, too! That risk scales with inflation, the early 2020s showed us that inflation isn't a relic of the past, and the 1970s showed us that it doesn't have to last only a couple years. Diversifying holdings out of any single asset class is usually a good bet for reducing the total risk surface, especially since there are always Rummy's Unknown Unknowns to contend with.

First, say a prayer of thanks that she's dispositionally a saver.

I do that pretty much every day.

Since she's aware of inflation, I've been gently pushing the idea of SGOV to her. I'm emphasizing the fact that her bank is likely using treasuries to fund the interest on her HYSA, so buying SGOV just cuts out the middle man. My hope is that if she can see it grow for a while without any catastrophes, she might accept more risk and investments that have a longer time horizon.

I do that pretty much every day.

Smart man.

Since she's aware of inflation...

I was trying to get at more something like this: does the idea of inflation eat away at her like the actual inflation eats away at her savings? Is it visceral? If she's generally got a low risk tolerance, savings is primarily providing an element of security to her psyche (as opposed to, say, opportunity), and explicitly orienting her portfolio around serving that purpose, with risk viewed as comprehensively as possible, is likely both the best end state for her investment approach and the conversational approach to move her in that direction.

For somebody who has that extreme level of risk aversion, what options are there that beat a HYSA? Browbeating her into equities isn't going to fly.

There's really not much if you want a hands off experience. If you live in a state with income tax, perhaps look into municipal bonds that offer tax exemption, that's about it.

I have experience with slowly convincing my father from only ever investing into real estate and never using a credit card to having around 25% of his networth in equities and putting everything through 2% credit card. It took a few years, but you just gotta be persistent. Combination of him seeing me do well with equities and seeing non stop SPX ATHs on the news did their thing over time. He started off with a $10k investment and once he saw the green numbers, it was easier to convince him to put in more. You really just gotta have her start and the green numbers will do the rest. Monkey brain loves seeing green number.

I don't use credit cards outside of the bare minimum necessary to keep them active.

I really don't understand this aversion of credit cards from some people. Do you believe you're so bad at controlling yourself that you will spend more than you can afford if you use a credit card?

Do you believe you're so bad at controlling yourself that you will spend more than you can afford if you use a credit card?

I've met a surprising number of people over the years who seem perfectly functional, only to later learn that they have five figures of credit card debt. I'd rather not even put myself in a position where I could find out I'm that kind of person. I've got a lot of people in my family with addiction and impulse control problems, and putting a fence around temptation has kept me from finding out I have the same problems.

Perhaps this person would consider something along these lines: Suppose there is $100,000 to invest. You put roughly 2/3 of that into a 10-year US treasury, or whatever the amount is that means you will get $100,000 back at the end. You put the remainder into a broad stock market index fund.

The psychological selling point of this strategy is that no matter what happens in the stock market, you are more or less guaranteed not to lose any principal. Obviously this is a questionable strategy if the goal is to maximize your returns. But for those who are extremely risk averse, it might be appealing and the expected result is arguably quite a bit better than if you'd put everything into a high yield savings account.

Treasury bonds could be a good option that's better than savings bank rates and is basically risk-free (if the US government goes belly up, none of your money is worth anything anyway). You can also suggest things like bond funds, which are more liquid and have slightly higher returns than just normal treasury bonds.

Treasury bonds have significant duration risk.

Sorry can you explain this a bit more?

Treasury bonds have maturities of 20-30 years. Cash flows further out in time are more sensitive to interest rate changes. For example, VLGSX has an average maturity of about 22 years and an average duration of about 14 years. A 1% fall (rise) in interest rates would mean about a 14% rise (fall) in the price of VLGSX.

You can get 3 month treasury bonds....

Those are generally referred to as Treasury bills. Absent additional qualifiers, bills, notes, and bonds usually refer to Treasuries with maturities of <= 1 year, >1 year to 10-years, and 20 to 30 years, respectively.

Ahhh okay thanks for the terminology clarification!

Not sure if it's the same problem as what Sloot's saying, but as someone who has to fight the 'just leave it in a savings account' instinct myself, there's a lot of fear about unpredictable expenses occurring in a way that your net worth could easily cover them, but your bank account can't, and either can't be converted into cash at all (eg, tech worker stock in companies they can't sell, ) or can only be converted at a massive cost or time investment (eg, bonds sales on secondary market, where tax ramifications become huge).

That’s why I would suggest a bond fund: it’s liquid in a way that individual bonds are not and has a pretty comparable yield. Yes you need to sell it but credit should be able to tide you over if it’s truly urgent

That’s why I would suggest a bond: it’s liquid in a way that individual bonds are not

Do you mean a bond fund?

Yes, corrected.

I've tentatively brought up the idea of something like SGOV to her, framing it as a slightly better alternative to a savings account. She's suspicious, but hasn't completely shut me down yet.

Yes, my brother-in-law is like your girlfriend. He’s…not young, and every dollar he’s saved is in a savings account. He’d be worth 3, 4, 5x what he is now if he had gone the index fund route, but for some reason that’s not convincing. I think because that doesn’t address the reason he fears risk in the first place.

He also has, so far, refused to get a mortgage, despite the fact all the options they looked at would have resulted in mortgage payments less than their current rent.

The frustration is how much more materially comfortable they could be—right now—if I had been managing their finances for them, or if he’d be willing to bear one iota more risk.

Your point is well-taken, and in that same spirit I don’t harass this man about his financial leadership in his family.

There is a happy medium, and I believe it exists. For example I sell options. Right now, I have a notional risk of 7x-8x my taxable portfolio’s actual value. If the market went to zero I’d lose in the market double what my house is worth. That seems insanely irresponsible to the average person, so I’m very shy about it irl, and I am extremely selective about to whom I mention what I’m up to.

How are you getting that level of leverage? My broker only lets me sell up to roughly half my account's value.

Not that I'd want to go 7x, but a little bit more would be nice.

You may be talking about margin, or buying power, usage.

If I sold a put at the $40 strike and my buying power decreased by $900, I still carry the notional risk of $4,000, the max loss of the put before considering the selling proceeds.

My mention of notional risk refers to that theoretical $4,000 while you may be asking about the $900. Is that right?

Right, but in my case my buying power goes down the full notional amount whenever I sell a put. I should probably look at the level of risk allowed, even though, again, I'm not looking to lever up that much.

Ah, you can find your options permissions in your investor profile on the broker website. It will probably be expressed in terms of “levels.”

Oh, and @WhateverHappenedToNorman, what explains the rest of the high notional is that most of that is actually options on futures. SPAN margin offers a lot more leverage than Reg-T. 7x I think would be impossible to achieve with Reg-T.

For example I sell options. Right now, I have a notional risk of 7x-8x my taxable portfolio’s actual value.

You sir, have balls of solid rock. There is absolutely no way I could bring myself to do that.

Looking back, the fact that I invest at all has more to do with an accident of fate than anything. I grew up dirt fucking poor. I don't mean "we couldn't afford a new car" poor. I mean "we had to cut slits in my shoes and tape them up because I outgrew them and couldn't afford replacements" poor, or "had a big, filling glass of water for dinner at least once a week" poor.

My first job out of college didn't pay handsomely, but it was enough money that I could dump 13% of my paycheck into my 401(k) and still feel richer than I had ever felt in my life. Every time I get a raise, I increase my savings one way or another and keep my spending power constant.

Absent that, I'd probably be like your brother in law. The terror of being poor stays with you wherever you go. I still regularly wargame what would happen if I lost my job, and wake up at night thinking that I'm going to lose my home.

I think about my relatives who haven't been able to get out. What advice do you offer to somebody who's still working retail in his 30s and has been turned down for his last ~50 applications to better jobs? "Just invest in SPY, bro" is going to bounce off their real-life circumstances so hard that it probably does more harm than good.

What advice do you offer to somebody who's still working retail in his 30s and has been turned down for his last ~50 applications to better jobs? "Just invest in SPY, bro" is going to bounce off their real-life circumstances so hard that it probably does more harm than good.

Ask them if they like free money.

The Saver's Credit isn't quite as good as a government match on retirement contributions (being a nonrefundable tax credit), but it's still pretty dang close to "the government will give you money for investing."

Ideally, you could bring them around to opening (say) a zero-fee Fidelity IRA, making enough of a contribution for the free money, and investing in a cheap target date index fund ("it's like you get a financial advisor rebalancing your account, but for free!"). Even a little bit will help supplement social security in retirement.

If you can't talk them around to that, see if you can at least get them to open a free Roth IRA, make the minimum contribution to get the government match, and then just leave it in the MMF that Fidelity defaults to (I keep saying Fido because I'm familiar with their interface/offerings; I'm sure plenty of other brokerages are the same). Tell them they can treat it as a bank savings account (since contributions can be taken out), but the interest earned will be tax free if they leave it there (since everyone loves not paying taxes). That way they get the government refund, and at least have the retirement account open, even if they're not leaving the money in it/invested, and that's a start.

And then let the inevitable corporate barrage of emails and ads about "let us help you save for retirement, here's some money tips" start to slowly do their work.

If I'm reading this correctly, you have to itemize to get the benefit, right?

I'll be have to do some math to see if that would beat the standard deduction for them.

It looks like you can take it and the standard deduction, since it's a credit rather than an itemized deduction. Kind of like the Lifetime Learning Credit.

What advice do you offer to somebody who's still working retail in his 30s and has been turned down for his last ~50 applications

Literally, Dave Ramsey’s Total Money Makeover. I’ve read it. The advice is solid. His writing is convicting, and it will actually make you excited to save and give you hope. Dave Ramsey was sent by God to pull desperate families out of poverty. I would offer his advice with few amendments. Maybe I would update his Baby Step 1 from $1,000 to $2,000, but not if that seemed insurmountable.

I'll try to see if my library has a copy. It sucks when someone comes to me for advice and I can't offer anything.

For somebody who has that extreme level of risk aversion, what options are there that beat a HYSA? Browbeating her into equities isn't going to fly.

Ibonds? $10k/person/year limit, indexed directly to inflation + a fixed rate, state tax exempt, 30 year term, and 100% safe (well, unless the entire US burns to the ground, in which case nothing would be safe). The only "risk" is that you can't cash them for the initial holding period, and lose the latest 3 months of interest if you cash them within 1-5 years of purchase. Some years, it won't beat an HYSA (current inflation + fixed rate is 4.26%, so if you'd had a 4.5% HYSA earlier this year that would've been higher), but it will always beat inflation by the fixed rate.

On a similar topic, are there "non optimal" things that you do financially, but you do them anyway?

I have some very silly auto-invest/auto-transfers set up, just because I like the flow a bit better, and in some cases I've set them up so they can continue for the future instead of just investing the cash on hand now and then setting up the auto-system.

Related, but I tend to use different accounts as "buckets", even if one of them is giving me less of a rate than, say, an MMF would -- or if one MMF is giving a slightly worse rate than another.

Related related, but I use NFCU's savings account (earning dimes) over a different HYSA/MMF. Will I ever need that immediate liquidity? No, but I like having it there all the same.

The other one is that I'll actually keep a few index ETFs (at around $100) in an account that I also have a mutual fund in. I like being able to log in, see what it's at throughout the day without having to look up the ticker. So for instance, if I'm in an international mutual fund, I'll also have ~$100 in VXUS.

So for instance, if I'm in an international mutual fund, I'll also have ~$100 in VXUS.

Just curious, why not hold VXUS instead of the mutual fund?

Replying again because I found this post that sums up my feelings on MFs vs ETFs:

For me the "ritual" goes something like this.

  1. On Saturday morning, take a look at the finances and realize you want to allocate $10K into this fund.
  2. Ah, but markets are closed, so write it down as a todo for Monday sometime.
  3. On Monday, take a break from the work day to execute this. Spend another 5 minutes double-checking, because it's been a couple of days since Saturday and some details have faded.
  4. Log into the account, go to the buy page. Watch the clever little Wall Street robots getting it on on the quote page. Briefly reflect on the incentive structure of modern capitalism.
  5. Check the premium/discount. Wonder if it means you're taking a 0.2% haircut right off the bat. Check the history. Oh well, it seems to be about average. Hopefully I'll get it back when I sell.
  6. Pick a number of shares and a limit price that's slightly above the Ask so your order gets executed quickly so you can get back to work. But not too much so you don't take it on the chin if an ETF share is temporarily under construction.
  7. Get startled by the yellow warning box. What did I do wrong? Realize that it's just Schwab telling you that the order may be executable. Well duh, I'm here to buy something not lay traps.
  8. Place the order and refresh a couple of times to see it executed. Notice that the price has inexplicably crawled up to right under your limit price; a clever little robot probably got you. Secretly hope that the robot's master discovers a hitherto unknown seafood allergy at the dinner you just paid for. Immediately feel a little guilty; seafood allergies are no fun.
  9. Realize that the clever little robot exposed a little mistake in your calculation: you rounded the limit price up. Again. Can never get those right. So now you owe Schwab a couple of bucks on your no-margin account. Set up a transfer and hope it makes it in time. 9.5, optional) Giggle as you recall asif408's apt description of the alternative, "cash turds leftover". Ain't that right.
  10. Log out, with that vague feeling of negotiation skill inadequacy that you always get after interacting with your car dealership. For the rest of the day, casually check your portfolio app to see how auspicious your choice of trading break time was.

I like mutual funds. I like that when I buy, I can only buy at the end of the day, when there's no worry about "is the market going up or down."

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