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Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.I OPENED MY FIRST bank account in the US at a local credit union (CU) close to my workplace. The CU had several convenient offers for employees of our company. With minimal effort, I opened checking and savings accounts, got free checkbooks and a credit card despite having no credit history in the US.
I was so pleased with the convenience that I handled all my banking needs through this CU for many years. That included direct deposit of my salary, payments and withdrawals, a car loan, and certificates of deposit (CDs) as my savings grew. I still maintain my checking account here and occasionally enjoy special favors as a longtime loyal customer.
Eventually, I realized that I earned very little interest from the bank deposits. I shopped around, found other banks with better rates, opened several accounts here and there, and moved my money around.
I felt good about being proactive and getting a better return on my cash reserve. But that feeling was short-lived as I started learning more about personal finance and investments. Tired of chasing yields in bank accounts, I eventually embraced US Treasurys (debt issued and backed by the US Government) as my alternative to savings accounts and CDs.
For those unfamiliar with US Treasurys, think of them as CDs with maturities ranging from four weeks to 30 years. They're widely used as a "safe investment" by individual, institutional and even sovereign investors around the world.
There are some key differences, though. Bank deposits are insured only up to $250,000. US Treasurys, on the other hand, are backed by the full faith and credit of the US Government. Therefore, there is virtually no default risk regardless of the investment amount.
Treasury interest rates, both short-term and long-term, are heavily influenced by monetary policy actions of the US Federal Reserve (Fed). Treasury interest rates directly affect many interest rates we encounter in everyday life: bank accounts, CDs, mortgage, car loans, personal and business loans, and so on.
Treasury interest rates are often higher than comparable bank products. Why? Because the intermediary financial institutions take their cut for operational costs and profits. Result? Suboptimal, or sometimes almost non-existent, interest on bank deposits.
But wait. What if I need my money back?
With bank deposits, I can walk in and withdraw cash from my account. If my money is locked in a CD, I may have to pay a penalty for early withdrawal, but I can still access it fairly quickly. What happens if I'm holding Treasurys? Do I need to wait until maturity?
That leads us to another important aspect of US Treasurys: their extremely high liquidity.
I can certainly buy newly issued Treasurys and wait until maturity, but I don't have to wait for these events. Investors around the world buy and sell Treasurys in the open market every day, making them one of the most liquid investments in existence.
Their liquidity, safety and meaningful return make Treasurys a compelling alternative for both short- and long-term cash reserves.
Sounds interesting? That's exactly how I felt after doing my own research. All I needed to figure out was the best way to invest in them.
Instead of buying Treasurys directly from the US Treasury, I use my brokerage accounts and buy and sell individual Treasurys or Treasury exchange-traded funds (ETFs) in the open market, just like stocks or funds. (I used to participate in Treasury auctions through the brokerage account to buy new issues and set my holdings to auto-roll upon maturity, but I eventually stopped doing that to keep things simple.)
For annual expenses and short-term cash needs, I like short-term, highly liquid, Treasury ETFs with a practically negligible expense ratio.
For money expected in three to four years, I favor short- and intermediate-term Treasury Inflation Protected Securities (TIPS) ETFs. TIPS have a lower interest rate compared to equivalent regular Treasurys, but their principal is adjusted with inflation, helping mitigate the risk of unexpected inflation.
For cash reserves further into the future, five years or more, my preference is a ladder of individual TIPS bonds, each maturing in a specific future year. Bond trading is slightly more involved than ETFs or stocks, so target-maturity TIPS ETFs can also be a reasonable alternative despite their slightly higher management fees.
Is there a catch compared to keeping money in conventional bank accounts?
I can't think of any, but there are two noticeable differences worth understanding.
First, unlike money sitting in bank accounts, Treasury investments fluctuate in value because they constantly change hands in open markets. For short-term Treasurys, the fluctuations are usually tiny. For intermediate- and long-term Treasurys, the swing can be more noticeable, especially when there's a major change in the interest rate expectation. Thankfully, these fluctuations are usually modest, and over time Treasurys often come out ahead compared to bank deposits.
The second difference deserves a bit more attention.
With a bank account, you can get hold of your money almost immediately. Treasury investments, however, may take a couple of business days to turn into spendable cash. You need to sell the ETF or bond during market hours. Once the transaction settles, usually the next business day, the proceeds can then be transferred out to the checking account for spending. In some cases, you may be able to carry on your spending activities directly from the brokerage account.
Over time, I shifted most of my liquid savings to Treasurys because of the improved result. Yet I still see many people leaving large cash balances in bank products or chasing yields from one bank to another.
I suspect the main reason is simple: lack of familiarity with US Treasurys.
Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.I OPENED MY FIRST bank account in the US at a local credit union (CU) close to my workplace. The CU had several convenient offers for employees of our company. With minimal effort, I opened checking and savings accounts, got free checkbooks and a credit card despite having no credit history in the US.
I was so pleased with the convenience that I handled all my banking needs through this CU for many years. That included direct deposit of my salary, payments and withdrawals, a car loan, and certificates of deposit (CDs) as my savings grew. I still maintain my checking account here and occasionally enjoy special favors as a longtime loyal customer.
Eventually, I realized that I earned very little interest from the bank deposits. I shopped around, found other banks with better rates, opened several accounts here and there, and moved my money around.
I felt good about being proactive and getting a better return on my cash reserve. But that feeling was short-lived as I started learning more about personal finance and investments. Tired of chasing yields in bank accounts, I eventually embraced US Treasurys (debt issued and backed by the US Government) as my alternative to savings accounts and CDs.
For those unfamiliar with US Treasurys, think of them as CDs with maturities ranging from four weeks to 30 years. They're widely used as a "safe investment" by individual, institutional and even sovereign investors around the world.
There are some key differences, though. Bank deposits are insured only up to $250,000. US Treasurys, on the other hand, are backed by the full faith and credit of the US Government. Therefore, there is virtually no default risk regardless of the investment amount.
Treasury interest rates, both short-term and long-term, are heavily influenced by monetary policy actions of the US Federal Reserve (Fed). Treasury interest rates directly affect many interest rates we encounter in everyday life: bank accounts, CDs, mortgage, car loans, personal and business loans, and so on.
Treasury interest rates are often higher than comparable bank products. Why? Because the intermediary financial institutions take their cut for operational costs and profits. Result? Suboptimal, or sometimes almost non-existent, interest on bank deposits.
But wait. What if I need my money back?
With bank deposits, I can walk in and withdraw cash from my account. If my money is locked in a CD, I may have to pay a penalty for early withdrawal, but I can still access it fairly quickly. What happens if I'm holding Treasurys? Do I need to wait until maturity?
That leads us to another important aspect of US Treasurys: their extremely high liquidity.
I can certainly buy newly issued Treasurys and wait until maturity, but I don't have to wait for these events. Investors around the world buy and sell Treasurys in the open market every day, making them one of the most liquid investments in existence.
Their liquidity, safety and meaningful return make Treasurys a compelling alternative for both short- and long-term cash reserves.
Sounds interesting? That's exactly how I felt after doing my own research. All I needed to figure out was the best way to invest in them.
Instead of buying Treasurys directly from the US Treasury, I use my brokerage accounts and buy and sell individual Treasurys or Treasury exchange-traded funds (ETFs) in the open market, just like stocks or funds. (I used to participate in Treasury auctions through the brokerage account to buy new issues and set my holdings to auto-roll upon maturity, but I eventually stopped doing that to keep things simple.)
For annual expenses and short-term cash needs, I like short-term, highly liquid, Treasury ETFs with a practically negligible expense ratio.
For money expected in three to four years, I favor short- and intermediate-term Treasury Inflation Protected Securities (TIPS) ETFs. TIPS have a lower interest rate compared to equivalent regular Treasurys, but their principal is adjusted with inflation, helping mitigate the risk of unexpected inflation.
For cash reserves further into the future, five years or more, my preference is a ladder of individual TIPS bonds, each maturing in a specific future year. Bond trading is slightly more involved than ETFs or stocks, so target-maturity TIPS ETFs can also be a reasonable alternative despite their slightly higher management fees.
Is there a catch compared to keeping money in conventional bank accounts?
I can't think of any, but there are two noticeable differences worth understanding.
First, unlike money sitting in bank accounts, Treasury investments fluctuate in value because they constantly change hands in open markets. For short-term Treasurys, the fluctuations are usually tiny. For intermediate- and long-term Treasurys, the swing can be more noticeable, especially when there's a major change in the interest rate expectation. Thankfully, these fluctuations are usually modest, and over time Treasurys often come out ahead compared to bank deposits.
The second difference deserves a bit more attention.
With a bank account, you can get hold of your money almost immediately. Treasury investments, however, may take a couple of business days to turn into spendable cash. You need to sell the ETF or bond during market hours. Once the transaction settles, usually the next business day, the proceeds can then be transferred out to the checking account for spending. In some cases, you may be able to carry on your spending activities directly from the brokerage account.
Over time, I shifted most of my liquid savings to Treasurys because of the improved result. Yet I still see many people leaving large cash balances in bank products or chasing yields from one bank to another.
I suspect the main reason is simple: lack of familiarity with US Treasurys.
Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.NO. 62: IF WE’LL SPEND money in the next few years, cash is the only prudent choice—but we shouldn’t hold more than necessary. Why not? After taxes and inflation, we’re likely losing money.
NO. 52: WE CAN’T forecast returns, but we can manage risk. Will stocks plunge? As the saying goes, “If you ask a stupid question, you’ll get a stupid answer.” Forget trying to guess whether stocks will nosedive. Instead, ponder the consequences: Would a sharp market drop imperil upcoming goals—or could you shrug off the short-term financial hit?
FLOW. We imagine what we want most is time to relax. But in truth, we get great satisfaction from work—provided it’s work we find challenging and interesting, and feel we’re good at. All this is captured by psychology professor Mihaly Csikszentmihalyi’s notion of flow. During moments of flow, we can become completely absorbed and lose all sense of time.
DECIDE WHICH DEBTS to pay off first. Looking to repay your loans more quickly than required? You’ll usually want to focus on ridding yourself of your highest-interest debt. But suppose you have a car loan that’s almost paid off. Even if the rate is low, you might pay extra toward that loan—because eliminating it will immediately improve your monthly cash flow.
NO. 62: IF WE’LL SPEND money in the next few years, cash is the only prudent choice—but we shouldn’t hold more than necessary. Why not? After taxes and inflation, we’re likely losing money.
At Thanksgiving, my son-in-law was asking me a number of financially related questions about retirement. He’s about 10 years away from retirement, but he knew I retired last year, so it was fresh in my mind. I created the following pre-retirement list for him to think about. Update: The list has been updated based on comments from the HD community.
HD Community: Are there any financially-related things you did to prepare for retirement that aren’t listed below?
I’VE BEEN CHALLENGED—by Mr. Clements, no less. Jonathan didn’t actually say it, but his challenge was to defend my unorthodox views on investing and retirement, and the actions I’ve taken as a result.
Some of my decisions will seem illogical to others. Some don’t maximize investment returns. Some are very conservative, others not so much.
I don’t like math. I don’t like details. I haven’t used a spreadsheet in 30 years. I focus on the big picture and long-term goals.
I’m not big on aphorisms—at least when talking to others. But there are certain things I say to myself all the time. Like what? Here are four mantras that I repeat to myself on an almost daily basis:
“First, do what you have to do, then do what you want to do.” This is my vegetables-first approach to the day. I have an ongoing to-do list that I typically revise each evening. When I look at that list in the morning,
I’VE ALWAYS ASSUMED my financial life wasn’t so different from that of others—and that made writing personal-finance articles a whole lot easier. I, too, wanted to own a home, buy the right insurance, pay for the kids’ college, and amass enough for a long and comfortable retirement.
On top of that, I wasn’t some financial minority—a highly paid executive, or a successful business owner, or the recipient of a hefty inheritance. Instead, I was like most everybody else,
To my best recollection, I first came across the book Predictably Irrational by Dan Ariely while on vacation. While my wife was checking out clothing and jewelry stores—a mild form of torture for me—I found a local bookstore and flipped through some of the more interesting chapters in Ariely’s book. One chapter’s thesis is that getting free stuff can be “a source of irrational excitement.” While the chapter is mostly about how our penchant for free things can be manipulated by marketers,
What does it take to be “rich?” Answering that question is nearly impossible. There are as many answers as Google sites, but after trying, I have settled on being in the top 10% of income and net worth at around $200,000 per year and $2,000,000. Most people think that’s rich.
Keep in mind you can meet the net worth goal even falling short on income.
What got me thinking about this was reading various social media sites where individuals were complaining about their inability to be wealthy and displayed strong envy over those who were.
- Cap COLAs for Top Half of Beneficiaries/25%
- Increase Payroll Tax by 2%/52%
- Eliminate Tax Max with Benefit Credit for Additional Payments/50%
- Apply Payroll Tax to Employer Health Insurance Contributions/23%
Total: 148% In 2050, your plan would reduce total scheduled benefits by 3% and increase payable benefits by 25%. Your plan would increase taxes by 43%."