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I'm one of the people my sibling comments talks about - I barely know what a bond is. But are bonds liquid? Part of the appeal of a savings account is that it'

I'm one of the people my sibling comments talks about - I barely know what a bond is. But are bonds liquid? Part of the appeal of a savings account is that it's still cash you can spend immediately by check/debit/cash with no need to sell/transfer to an account. I agree that a 4% savings account is not a good way to invest money - but that's why I don't think they're comparable to bonds.

adam_arthur 4y ago
Yes, can buy a T-Bill fund like SGOV and get ~5%. Can buy/sell it as you would any other stock. Carries no credit/duration risk (effectively)
- anotherman554 4y ago
  I just went to the Ishares web site and 3.55% is the reported yield to maturity for SGOV.
  - adam_arthur 4y ago
    “30 day SEC yield: 4.68%” The fund will lag Fed hikes by a few months, but otherwise will yield the same as buying T-Bills directly. Using trailing distribution data to compute yields will not work for a T-Bill fund in the middle of a Fed hiking cycle.
    - deleted 4y ago
      [deleted]
    - anotherman554 4y ago
      You could be right but that doesn't explain why the yield to maturity is reported so low. The yield to maturity should be the earning you get if you hold the fund until maturity and interest rates stay as they are today. It's possible Ishares is not reporting this number accurately.
      - adam_arthur 4y ago
        They own T Bills, so the yield you get is the same as on the T Bill. Any difference is from the management fee (0.05%) or due to T Bills that haven’t matured yet which don’t reflect current rate. There are different ways of measuring a fund’s yield, but at the end of the day this is mechanically how this fund works.
      - mbesto 4y ago
        https://www.etf.com/etf-education-center/etf-basics/how-do-bond-etfs-work https://www.etf.com/etf-education-center/etf-basics/how-do-b...
- thewataccount 4y ago
  Thanks for the explanation! I guess to answer your question of why not get bonds - they just aren't comparable. One's effectively an investment that requires multiple steps to be used to purchase that expensive computer monitor on amazon, and the other you just select your payment to be a debit card and click purchase. T-Bills sound relatively liquid, but a savings account still beats it at the cost of 1% interest (assuming 5% for the bonds).
  - adam_arthur 4y ago
    Sure, though anybody with a moderate networth should have their money in a brokerage or other assets rather than savings/checkings. For many reasons. If you’re living paycheck to paycheck and need to move money around to make small purchases, then it’s not for you, yeah. Money market funds are for savings, not money that will be imminently spent. But then so are savings accounts at banks (vs Checking accounts)
    - thewataccount 4y ago
      > But then so are savings accounts at banks (vs Checking accounts) Yeah this is the part that I'm confused about because I think that savings accounts are federally restricted to 6 withdrawls a month? I could be completely wrong on that. But yeah the target audience for this IMO - people who have maybe a few thousand saved up that they keep for emergency funds or semi-hot money for larger purchases. which matches the target iphone audience I think pretty well. I bet they restricted accounts to less then 250k because they don't want to bother splitting it across banks when the target audience would be expected to only have several thousand.

adam_arthur 4y ago

Yes, can buy a T-Bill fund like SGOV and get ~5%. Can buy/sell it as you would any other stock. Carries no credit/duration risk (effectively)

anotherman554 4y ago
I just went to the Ishares web site and 3.55% is the reported yield to maturity for SGOV.
- adam_arthur 4y ago
  “30 day SEC yield: 4.68%” The fund will lag Fed hikes by a few months, but otherwise will yield the same as buying T-Bills directly. Using trailing distribution data to compute yields will not work for a T-Bill fund in the middle of a Fed hiking cycle.
  - deleted 4y ago
    [deleted]
  - anotherman554 4y ago
    You could be right but that doesn't explain why the yield to maturity is reported so low. The yield to maturity should be the earning you get if you hold the fund until maturity and interest rates stay as they are today. It's possible Ishares is not reporting this number accurately.
    - adam_arthur 4y ago
      They own T Bills, so the yield you get is the same as on the T Bill. Any difference is from the management fee (0.05%) or due to T Bills that haven’t matured yet which don’t reflect current rate. There are different ways of measuring a fund’s yield, but at the end of the day this is mechanically how this fund works.
    - mbesto 4y ago
      https://www.etf.com/etf-education-center/etf-basics/how-do-bond-etfs-work https://www.etf.com/etf-education-center/etf-basics/how-do-b...
thewataccount 4y ago
Thanks for the explanation! I guess to answer your question of why not get bonds - they just aren't comparable. One's effectively an investment that requires multiple steps to be used to purchase that expensive computer monitor on amazon, and the other you just select your payment to be a debit card and click purchase. T-Bills sound relatively liquid, but a savings account still beats it at the cost of 1% interest (assuming 5% for the bonds).
- adam_arthur 4y ago
  Sure, though anybody with a moderate networth should have their money in a brokerage or other assets rather than savings/checkings. For many reasons. If you’re living paycheck to paycheck and need to move money around to make small purchases, then it’s not for you, yeah. Money market funds are for savings, not money that will be imminently spent. But then so are savings accounts at banks (vs Checking accounts)
  - thewataccount 4y ago
    > But then so are savings accounts at banks (vs Checking accounts) Yeah this is the part that I'm confused about because I think that savings accounts are federally restricted to 6 withdrawls a month? I could be completely wrong on that. But yeah the target audience for this IMO - people who have maybe a few thousand saved up that they keep for emergency funds or semi-hot money for larger purchases. which matches the target iphone audience I think pretty well. I bet they restricted accounts to less then 250k because they don't want to bother splitting it across banks when the target audience would be expected to only have several thousand.