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birb_cromble  1mo ago (text post)   996 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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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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