5 ms·
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 a
by 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 agoWhat gives higher returns but near-zero risk?
- striking 10y agoBonds, 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 agoBond 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 agoShort-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 agoTreasury Series EE Bonds (~3.5% yield...)
- umanwizard 10y agoThese are vulnerable to changes in interest rates. If interest rates increase, their value drops.
- phonon 10y agoThey are guaranteed to double after 20 years (hence 3.5% rate).
- ghaff 10y agoIn current dollars.
- umanwizard 10y agoTo 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 agoYes, I know that. EE Bonds are not intended to be that liquid, they are meant to be held to maturity.
- umanwizard 10y agoOkay... so they're higher risk than a savings account.
- phonon 10y agoWell, depends on what "risk" means...default risk? Inflation risk? How about currency risk? What if the dollar gets weaker? You need a totally different hedge for that...a savings account would not help.
- JoshTriplett 10y agoIndex 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 agoYou'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 agoStocks are not low risk. Stocks are not low risk. It bears repeating.
- 1812Overture 10y agoIndex 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 agoIndex 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 agoIf 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 agoShort-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 agoMost 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.