5 ms·

Yeah, my interpretation is that people are not storing their wealth in dollars, which is a bad sign for the currency.

by jostmey 10y ago

sdegutis 10y ago
It's not so much that dollars are the problem, it's that there are more lucrative ways to store money, ways which actually get returns. Savings accounts today are just a slightly more secure way of hiding money under the bed. Whereas if you invest it in basically anything else, you'll have a much better chance of it increasing, with often times very low risk of it decreasing. Modern savings account plans are the real problem here.
- umanwizard 10y ago
  What gives higher returns but near-zero risk?
  - striking 10y ago
    Bonds, at least? Mutual funds that make use of bonds? (This is a question, not an answer, by the way. I have no idea.)
    - jonknee 10y ago
      Bond rates are low too and have transaction costs. Very poor substitute for a savings account with an emergency fund. http://www.bloomberg.com/markets/rates-bonds/government-bonds/us http://www.bloomberg.com/markets/rates-bonds/government-bond... (.27% for 3 month treasuries, just .79% for 2 year)
    - umanwizard 10y ago
      Short-term, low-risk bonds (like T-bills) have super low interest rates also. Longer-term bonds are significantly higher risk than a savings account.
  - phonon 10y ago
    Treasury Series EE Bonds (~3.5% yield...)
    - umanwizard 10y ago
      These are vulnerable to changes in interest rates. If interest rates increase, their value drops.
      - phonon 10y ago
        They are guaranteed to double after 20 years (hence 3.5% rate).
        ghaff 10y ago
        In current dollars.
        umanwizard 10y ago
        To explain a bit more what I mean by interest rate risk: Imagine I buy $1000 in EE bonds today. Then tomorrow, conditions change, and the government starts selling 20-year bonds with a 7% rate. My bonds are now worth much less than $1000 -- no one would buy them from me on the open market, except at a substantial discount, since they could just buy the higher-yield ones for $1000. These conditions that led to a higher interest rate are probably also leading to a higher inflation rate. So my $1000 is locked up for 20 years in an instrument where it's decreasing in real value.
        phonon 10y ago
        Yes, I know that. EE Bonds are not intended to be that liquid, they are meant to be held to maturity.
        umanwizard 10y ago
        Okay... so they're higher risk than a savings account.
  - JoshTriplett 10y ago
    Index funds, through a reputable and low-overhead fund like Vanguard's; you'll never do worse than the market. They can absolutely go down, so don't put any money in them that you might need right away, but as a long-term investment, they'll always give you a rate of return approximating the overall economy.
    - umanwizard 10y ago
      You're basically saying the same thing as I am. I don't deny that there are better investment vehicles than a savings account. I'm just asking whether there is something of similarly low risk with a better interest rate. Stocks are definitely not lower-risk.
    - taurath 10y ago
      Stocks are not low risk. Stocks are not low risk. It bears repeating.
      - 1812Overture 10y ago
        Index funds aren't individual stocks. They're pretty low risk. If an index goes to 0, T-Bills, CDs, and cash won't be worth anything either, you'll need shotgun shells, generator fuel, and canned food.
        taurath 10y ago
        Index funds are stocks. The market contracts - frequently. Over long periods of time its gone up. See the chart below [0] - If you invested all your money in 1965, there is only a 8 year window at the end of the 90s where you would have averaged a 3% return per year. Much of the rest of the time you're looking at negative returns. [0]: https://static01.nyt.com/packages/images/newsgraphics/2011/0102-metrics/triangle.png https://static01.nyt.com/packages/images/newsgraphics/2011/0...
        1812Overture 10y ago
        If you invested at the worst time in the past century that would be bad. If you invested in T-bills or CDs you'd have gotten murdered by inflation in that period too. NYT piece you're referencing says the average annual return over 20 years is 4.1% net of taxes, fees, and inflation. Not too bad.
  - BorgHunter 10y ago
    Short-term federal debt funds like VFISX and VSGBX have very low risk and do better than most savings accounts. The risk is probably close enough to zero for most people, considering it's basically all interest rate risk on short-term U.S. federal government bonds.
- jonknee 10y ago
  Most Americans aren't constantly moving dollars between investment accounts to eek out more interest (a terrible idea for many reasons!). In a world of negative interest rates, US savings accounts aren't so bad. The problem is most don't have adequate savings.
gleenn 10y ago
You're probably thinking to deeply about this. I think most people are "storing" their money in consumable assets that they are likely immediately consuming - aka broke. Thinking about what you have your money in is pretty high level for a lot of people I think.
- soundwave106 10y ago
  Actually it's more like a very significant amount of people have the majority of their net worth "stored" in their homes. https://www.census.gov/people/wealth/files/Wealth%20Highlights%202011.pdf https://www.census.gov/people/wealth/files/Wealth%20Highligh... (Direct link to spreadsheet here: http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx http://www.census.gov/people/wealth/files/Wealth_Tables_2011...) It's kind of difficult to fully read this 2011 survey since "percent holding" and "median value" is in two separate tabs, and it's hard to get a good sense of correlations. But the spreadsheet seems to show: - Almost 70% of people owned a savings account, with a median value of $2,450 overall. - 29% of people own a checking account, with a median value of $600 - 85% of people own a motor vehicle, with a median value of about $6,800 - 65% of people own a home, with a median equity value of $80,000 - 42% of people have a 401k, with a median value of $30,000 - 29% of people have an IRA account, with a median value of $32,000. By far, it appears that housing is the most valuable asset many people own; at least, in every category, the median for housing is higher (sometimes up to 6 times higher) than the median for a 401K account. Also, it seems that a far more percentage of people have houses compared to 401Ks, the next largest category with >$10K median assets. Now, is it a bad sign? The only things I can say: A) Houses are hardly a "liquid asset". B) Home ownership for many reasons is declining (http://blogs.wsj.com/economics/2016/04/28/u-s-homeownership-rate-falls-again-nearing-a-48-year-low/ http://blogs.wsj.com/economics/2016/04/28/u-s-homeownership-...). The later point makes me wondering if future generations' preparation for retirement may be impacted. The former is not a bad thing if you do have liquid assets for emergencies etc, but I can imagine there is a significant percentage which do not. (A 401K really isn't a great "liquid asset" for instance, and some probably don't have much of that.)
  - ac29 10y ago
    That percentage for checking accounts is extremely low, and suggests that half of homeowners don't have checking account, and only a third of car owners do. I cant reconcile how that large of a discrepancy is possible. Surely some people inherited houses or cars, or paid literal cash, but it cant be that many. edit: This FDIC report [0] from earlier this month suggests only 7% of households are "unbanked", meaning they dont have access to a bank account (doesn't specify what type). That number makes way more sense. [0] https://fdic.gov/news/news/speeches/spsep0816.html https://fdic.gov/news/news/speeches/spsep0816.html

Yeah, my interpretation is that people are not storing their wealth in dollars, which is a bad sign for the currency.

by jostmey 10y ago

Yeah, my interpretation is that people are not storing their wealth in dollars, which is a bad sign for the currency.

It's not so much that dollars are the problem, it's that there are more lucrative ways to store money, ways which actually get returns. Savings accounts today are just a slightly more secure way of hiding money under the bed. Whereas if you invest it in basically anything else, you'll have a much better chance of it increasing, with often times very low risk of it decreasing. Modern savings account plans are the real problem here.

umanwizard 10y ago
What gives higher returns but near-zero risk?
- striking 10y ago
  Bonds, at least? Mutual funds that make use of bonds? (This is a question, not an answer, by the way. I have no idea.)
  - jonknee 10y ago
    Bond rates are low too and have transaction costs. Very poor substitute for a savings account with an emergency fund. http://www.bloomberg.com/markets/rates-bonds/government-bonds/us http://www.bloomberg.com/markets/rates-bonds/government-bond... (.27% for 3 month treasuries, just .79% for 2 year)
  - umanwizard 10y ago
    Short-term, low-risk bonds (like T-bills) have super low interest rates also. Longer-term bonds are significantly higher risk than a savings account.
- phonon 10y ago
  Treasury Series EE Bonds (~3.5% yield...)
  - umanwizard 10y ago
    These are vulnerable to changes in interest rates. If interest rates increase, their value drops.
    - phonon 10y ago
      They are guaranteed to double after 20 years (hence 3.5% rate).
      - ghaff 10y ago
        In current dollars.
      - umanwizard 10y ago
        To explain a bit more what I mean by interest rate risk: Imagine I buy $1000 in EE bonds today. Then tomorrow, conditions change, and the government starts selling 20-year bonds with a 7% rate. My bonds are now worth much less than $1000 -- no one would buy them from me on the open market, except at a substantial discount, since they could just buy the higher-yield ones for $1000. These conditions that led to a higher interest rate are probably also leading to a higher inflation rate. So my $1000 is locked up for 20 years in an instrument where it's decreasing in real value.
        phonon 10y ago
        Yes, I know that. EE Bonds are not intended to be that liquid, they are meant to be held to maturity.
        umanwizard 10y ago
        Okay... so they're higher risk than a savings account.
- JoshTriplett 10y ago
  Index funds, through a reputable and low-overhead fund like Vanguard's; you'll never do worse than the market. They can absolutely go down, so don't put any money in them that you might need right away, but as a long-term investment, they'll always give you a rate of return approximating the overall economy.
  - umanwizard 10y ago
    You're basically saying the same thing as I am. I don't deny that there are better investment vehicles than a savings account. I'm just asking whether there is something of similarly low risk with a better interest rate. Stocks are definitely not lower-risk.
  - taurath 10y ago
    Stocks are not low risk. Stocks are not low risk. It bears repeating.
    - 1812Overture 10y ago
      Index funds aren't individual stocks. They're pretty low risk. If an index goes to 0, T-Bills, CDs, and cash won't be worth anything either, you'll need shotgun shells, generator fuel, and canned food.
      - taurath 10y ago
        Index funds are stocks. The market contracts - frequently. Over long periods of time its gone up. See the chart below [0] - If you invested all your money in 1965, there is only a 8 year window at the end of the 90s where you would have averaged a 3% return per year. Much of the rest of the time you're looking at negative returns. [0]: https://static01.nyt.com/packages/images/newsgraphics/2011/0102-metrics/triangle.png https://static01.nyt.com/packages/images/newsgraphics/2011/0...
        1812Overture 10y ago
        If you invested at the worst time in the past century that would be bad. If you invested in T-bills or CDs you'd have gotten murdered by inflation in that period too. NYT piece you're referencing says the average annual return over 20 years is 4.1% net of taxes, fees, and inflation. Not too bad.
- BorgHunter 10y ago
  Short-term federal debt funds like VFISX and VSGBX have very low risk and do better than most savings accounts. The risk is probably close enough to zero for most people, considering it's basically all interest rate risk on short-term U.S. federal government bonds.
jonknee 10y ago
Most Americans aren't constantly moving dollars between investment accounts to eek out more interest (a terrible idea for many reasons!). In a world of negative interest rates, US savings accounts aren't so bad. The problem is most don't have adequate savings.

gleenn 10y ago

You're probably thinking to deeply about this. I think most people are "storing" their money in consumable assets that they are likely immediately consuming - aka broke. Thinking about what you have your money in is pretty high level for a lot of people I think.

soundwave106 10y ago
Actually it's more like a very significant amount of people have the majority of their net worth "stored" in their homes. https://www.census.gov/people/wealth/files/Wealth%20Highlights%202011.pdf https://www.census.gov/people/wealth/files/Wealth%20Highligh... (Direct link to spreadsheet here: http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx http://www.census.gov/people/wealth/files/Wealth_Tables_2011...) It's kind of difficult to fully read this 2011 survey since "percent holding" and "median value" is in two separate tabs, and it's hard to get a good sense of correlations. But the spreadsheet seems to show: - Almost 70% of people owned a savings account, with a median value of $2,450 overall. - 29% of people own a checking account, with a median value of $600 - 85% of people own a motor vehicle, with a median value of about $6,800 - 65% of people own a home, with a median equity value of $80,000 - 42% of people have a 401k, with a median value of $30,000 - 29% of people have an IRA account, with a median value of $32,000. By far, it appears that housing is the most valuable asset many people own; at least, in every category, the median for housing is higher (sometimes up to 6 times higher) than the median for a 401K account. Also, it seems that a far more percentage of people have houses compared to 401Ks, the next largest category with >$10K median assets. Now, is it a bad sign? The only things I can say: A) Houses are hardly a "liquid asset". B) Home ownership for many reasons is declining (http://blogs.wsj.com/economics/2016/04/28/u-s-homeownership-rate-falls-again-nearing-a-48-year-low/ http://blogs.wsj.com/economics/2016/04/28/u-s-homeownership-...). The later point makes me wondering if future generations' preparation for retirement may be impacted. The former is not a bad thing if you do have liquid assets for emergencies etc, but I can imagine there is a significant percentage which do not. (A 401K really isn't a great "liquid asset" for instance, and some probably don't have much of that.)
- ac29 10y ago
  That percentage for checking accounts is extremely low, and suggests that half of homeowners don't have checking account, and only a third of car owners do. I cant reconcile how that large of a discrepancy is possible. Surely some people inherited houses or cars, or paid literal cash, but it cant be that many. edit: This FDIC report [0] from earlier this month suggests only 7% of households are "unbanked", meaning they dont have access to a bank account (doesn't specify what type). That number makes way more sense. [0] https://fdic.gov/news/news/speeches/spsep0816.html https://fdic.gov/news/news/speeches/spsep0816.html