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Most people on HN who are optimizing interest/etc to the penny, and I count myself among this number, have a hobby with similar economic returns to World of War

Most people on HN who are optimizing interest/etc to the penny, and I count myself among this number, have a hobby with similar economic returns to World of Warcraft but poorer graphics. The biggest lever you have available, by orders of magnitude, is optimizing the returns to your career or business. That disclaimer out of the way: One of the folks who works at M1 Finance pitched me on the following, for folks who have similar cashflow characteristics to the median HNer. (They've essentially productized this, and with slightly more work you could get it out of Interactive Brokers. It's hard to do with most discount brokers due to prevailing margin rates.) It captures most of the advantages of the "hybrid" account and is actually available in the status quo, which is an advantage. Deposit your paycheck. It is automatically invested. Spend on margin; repay it the next month on payday, when you repeat the cycle. Change this only if you experience long-term unemployment, which you a) probably will not and which b) savings is the least effective financial product to prepare you for it. Their theory is that the ~3% impact of margin is less than the fundamental return of an equity-heavy portfolio measured in small increments over a long period of time, so you should prefer to be perpetually ~100% invested in your taxable accounts rather than "materially less than totally invested", which is what most well-paid professionals are given usage of a checking account and poor decisions embedded in their financial products. (e.g. If you have $50k net worth, $8k in post-tax payroll per month, and are saving $2k per month, you're no higher than 86% invested and if you are following common financial advice you with a six month buffer in a non-investment emergency fund you are ~24% invested.) This sounds strikingly plausible to me, for what it is worth, again contingent on one being a well-compensated professional with predictable cashflow in and out and a temperament amenable to discipline and commitment. It is not not not not the consensus of advisors to the American middle class.

TheSpiceIsLife 7y ago
> contingent on one being a well-compensated professional with predictable cashflow in and out and a temperament amenable to discipline and commitment. If one‘s planets are aligned thusly one will generally have far fewer financial worries than that other group of people who are not so lucky. You can give people all the best financial advice in the world and some of them will continue to make poor choices.
divbzero 7y ago
Very intriguing. Thanks for sharing. Sounds like what M1 offers is indeed very close to the “hybrid bank account” described by OP. Official statements from their website [1] reveal their hybrid nature: > Securities in M1 Invest accounts are insured up to $500,000 by the SIPC. > M1 Spend checking accounts may be insured up to $250,000 by the FDIC. [1]: https://www.m1finance.com/ https://www.m1finance.com/
- patio11 7y ago
  Most of the top discount brokers either own a bank or have a sweep arrangement with banks, specifically to get FDIC insurance for large cash balances, which you do not want to have. The specific things M1 offers that make them close to this blog post are a) low margin rates (3~3.25%) and b) autoinvestment of deposits (including payroll deposits), which is grumblegrumble rarer than you'd guess.
perl4ever 7y ago
"Most people on HN who are optimizing interest/etc to the penny" It could be I've gone wrong in my reasoning somewhere, but I decided a while ago that the interest on savings or checking is completely insignificant compared to credit card cash back. If you have 0.01% or 1% on your checking/savings, that means you earn that much on your average balance. If you have 1% cash back on a credit card, you are earning that on the total of your charges. So over a year, it's an order of magnitude more. As far as I can see, it doesn't make any sense to go to any effort at all to get interest on the cash that you are about to spend.
Spooky23 7y ago
That’s an interesting strategy and may be a hack around the tax law changes for some people.
CapriciousCptl 7y ago
By assuming margin you increase your short-term debt service, increase your expected expenses in an emergency and reduce your available credit while being limited in your access to funds in downturns because of margin calls. That undermines the strategy. In the example, you'd get the same net effect in terms of less-ability to weather emergencies and increased market exposure without having to pay margin interest by just reducing the emergency fund by 1 month's after-tax pay.

TheSpiceIsLife 7y ago

> contingent on one being a well-compensated professional with predictable cashflow in and out and a temperament amenable to discipline and commitment. If one‘s planets are aligned thusly one will generally have far fewer financial worries than that other group of people who are not so lucky. You can give people all the best financial advice in the world and some of them will continue to make poor choices.

divbzero 7y ago

Very intriguing. Thanks for sharing. Sounds like what M1 offers is indeed very close to the “hybrid bank account” described by OP. Official statements from their website [1] reveal their hybrid nature: > Securities in M1 Invest accounts are insured up to $500,000 by the SIPC. > M1 Spend checking accounts may be insured up to $250,000 by the FDIC. [1]: https://www.m1finance.com/ https://www.m1finance.com/

patio11 7y ago
Most of the top discount brokers either own a bank or have a sweep arrangement with banks, specifically to get FDIC insurance for large cash balances, which you do not want to have. The specific things M1 offers that make them close to this blog post are a) low margin rates (3~3.25%) and b) autoinvestment of deposits (including payroll deposits), which is grumblegrumble rarer than you'd guess.

perl4ever 7y ago

"Most people on HN who are optimizing interest/etc to the penny" It could be I've gone wrong in my reasoning somewhere, but I decided a while ago that the interest on savings or checking is completely insignificant compared to credit card cash back. If you have 0.01% or 1% on your checking/savings, that means you earn that much on your average balance. If you have 1% cash back on a credit card, you are earning that on the total of your charges. So over a year, it's an order of magnitude more. As far as I can see, it doesn't make any sense to go to any effort at all to get interest on the cash that you are about to spend.

Spooky23 7y ago

That’s an interesting strategy and may be a hack around the tax law changes for some people.

CapriciousCptl 7y ago

By assuming margin you increase your short-term debt service, increase your expected expenses in an emergency and reduce your available credit while being limited in your access to funds in downturns because of margin calls. That undermines the strategy. In the example, you'd get the same net effect in terms of less-ability to weather emergencies and increased market exposure without having to pay margin interest by just reducing the emergency fund by 1 month's after-tax pay.