The Not Financial Advice Thread

[kingseanjohn]

I've been in the stocks and bitcoin threads but I haven't seen anything regarding finances in general. So, I thought I'd make a thread to discuss other financial topics. Some things to remember:

• Anything posted in this thread should not be considered financial advice
• No one who posts in here is your financial advisor or fiduciary
• Do your own research and seek out a professional fiduciary as needed when making your decisions

 

 

My first thought for the thread; Why isn't anyone really talking about I Bonds?

What are I Bonds you may be asking? Here's a quick example and breakdown from Nerd Wallet:

Quote

Whether I bonds are a good choice for you depends on your financial goals and timeline. I bonds can be a safe immediate-to-long-term savings vehicle, especially in inflationary times. I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax-exemptions and federal tax exemptions when used to fund educational expenses. Remember, though, there are penalties for withdrawing the money too soon, and interest rates are adjusted every six months.

Take the following example: Say you bought $10,000 worth of electronic I bonds in May 2022 (the maximum amount of electronic I bonds you can buy in one year). Your fixed rate would be 0% and your inflation rate would be 4.81%. Your composite rate would be calculated as follows:

 

[Fixed rate + (2x inflation rate) + (fixed rate x inflation rate)] = composite rate

Or, in real numbers:

[0 + (2 x 0.0481) + (0 x 0.0481)] = 0.09620

 

This composite rate of 9.62%, applied to $10,000 in I bonds, would earn a guaranteed $481 in interest over the next six months — but you cannot cash in your bond until you've held it for a year. So why even mention the six-month take? Because your rate is only guaranteed for six months. After that, the rate can go up or down.

Assuming interest rates stay the same as they are now, and after adding your first six months of interest ($481) to your principal of $10,000, you could earn $985 total in interest after one year. But if you cash in your bond before you've held it for five years, you'll lose the last three months of interest you earned. If the rate stays the same, that would mean you'd subtract $252 from your interest and exit the bond agreement with your $10,000 in principal and $733 in interest for a total of $10,733, minus any tax owed.

But bonds are meant to be held long-term, and rates likely will change over time. If you kept your $10,000 bond for 30 years, you wouldn't lose any interest to penalties, but there is no guarantee your rate would stay the same...

Electronic I bonds have a minimum purchase amount of $25 and a maximum of $10,000 each calendar year. You can buy them in any amount up to $10,000...

While the current fixed rate is 0%, the inflation rate is rather high. However, right now you are guaranteed that 9.62% for six months if bought on or prior to October 28th. With us being in a recession and the fed raising interest rates, the calculated inflation rate is going to raise -- in my opinion. I feel like I Bonds are worth investing in for at least 15 months, if not longer. You just have to remember that you can't touch the money for a full year no matter what. After one year you can withdraw with the 3 month interest penalty, or wait 5 years with no penalty. Your bonds' value cannot ever go down with the exception of the 3 month interest penalty. Here's an official chart to show composite % values since September 1998.

Also, in case you didn't do the math, the interest is compounded semi-annually.

Official website for I Bonds: Treasury Direct

 

I've been thinking about doing I Bond ladders each year for 5 years and cashing out since the fixed rate is currently 0%. If/when the fixed rate raises I think I'll keep them going long term. Any thoughts?

Edited October 25, 2022 by kingseanjohn

[Kiwibrown]

I have no real idea what is happening with the world economies. and you can quote me on that. 

[LETSGOBROWNIES]

Not financial advice?
 

- open an HSA if you’re eligible and contribute as much as you can.

- make sure you’re not leaving any cash on the table as far as employer match for HSA, IRA, 401k, etc.

- the best time to start saving for retirement was years ago.  The next best time is now.  Get to it if you haven’t already.

- New cars are cool, no car payment is cooler.

- Index fund make investing (relatively) safe and easy.

- The 6 months emergency savings isn’t always necessary, but it’s a good, generic goal.

- “it’s about time in the market, not timing the market”

- pay yourself first.  You don’t save what you don’t spend, you spend what you don’t save.

- credit cards are not only not bad, they’re an essential and a wonderful tool of used properly.

- buying “stuff” rarely makes you happy long term.  Buying experiences does though imo.

this was off the top of my head anyway.  Obviously if you’re just trying to make ends meet, a lot of this may not apply yet.

[Heimdallr]

I recently sold my house so I have a good chunk of change I'm sitting on, but I'm not really feeling comfortable investing it right now.... It just feels like things could turn south (in a big way) any minute. I'm not really sure what to do. I know what to do with my longterm stuff, but for short term "extra" money / emergency savings (beyond a 6-month stash) I'm sort of feeling like cash is best right now? 

[LETSGOBROWNIES]

50 minutes ago, Heimdallr said:

I recently sold my house so I have a good chunk of change I'm sitting on, but I'm not really feeling comfortable investing it right now.... It just feels like things could turn south (in a big way) any minute. I'm not really sure what to do. I know what to do with my longterm stuff, but for short term "extra" money / emergency savings (beyond a 6-month stash) I'm sort of feeling like cash is best right now? 

I’m sitting on a lot more cash than normal myself. I do feel like things are gonna get worse before they get better, but who knows…

[ramssuperbowl99]

12 hours ago, Heimdallr said:

I recently sold my house so I have a good chunk of change I'm sitting on, but I'm not really feeling comfortable investing it right now.... It just feels like things could turn south (in a big way) any minute. I'm not really sure what to do. I know what to do with my longterm stuff, but for short term "extra" money / emergency savings (beyond a 6-month stash) I'm sort of feeling like cash is best right now? 

Here's the S&P 500 in in and after the 2008 crash, along with investor confidence:

Investor confidence tanks right with (or even ahead of) the S&P, but doesn't recover. Here's the S&P over the past year:

Here's the S&P 500 today:

 

I'm not saying we're exactly at the bottom, but it's important to recognize that psychologically, we take much longer to mentally recover from losses than markets do.

[Dome]

If anyone gives you 10,000 to 1 odds on anything, you take that bet.

If John Mellencamp ever wins an Oscar, I will be one rich dude.

[kingseanjohn]

On 8/9/2022 at 6:29 PM, Heimdallr said:

I recently sold my house so I have a good chunk of change I'm sitting on, but I'm not really feeling comfortable investing it right now.... It just feels like things could turn south (in a big way) any minute. I'm not really sure what to do. I know what to do with my longterm stuff, but for short term "extra" money / emergency savings (beyond a 6-month stash) I'm sort of feeling like cash is best right now? 

I Bonds guaranteed 9.62% for next 6 months. Likely to remain high after the next rate update imo.

[biggie.]

On 8/9/2022 at 6:01 PM, LETSGOBROWNIES said:

- New cars are cool, no car payment is cooler.

- Index fund make investing (relatively) safe and easy.

- The 6 months emergency savings isn’t always necessary, but it’s a good, generic goal.

this was off the top of my head anyway.  Obviously if you’re just trying to make ends meet, a lot of this may not apply yet.

I say go new if you plan on holding onto the vehicle until it becomes a net negative. Big advice when it comes to vehicles is start saving for the new car as soon as you get the new one. I have a 10 year old Civic that's in outstanding shape and I have a side hustle that feeds my new car fund. Unless something catastrophic happens, by the time the Civic net negs me (which may be a while because they're road roaches if you take care of them) I'll have enough in the new car fund to where either I won't be making payments for very long or even outright buy the car.

When it comes to investing, realize that no pain, no gain; you have to have a mindset that market slumps like this means they're on sale. Warren Buffet advises be optimistic when things look bad, pessimistic when things look good. Know what the index fund is for, as well. Some are more focused on growth (QQQ), staying stable and paying dividends (VYM) or a little bit of both (VOO and VTI). Heck, I found one that was built using only companies with "conservative values". Expense ratio, which is basically an admin fee for owning shares, is another thing to consider. My biggest piece of advice is only invest with money you can afford to lose.

My only issue with the 6 months rule is that it's relative to everyone. I live in the barracks with little to no bills. On top of my head I have Internet, YT Premium, car fueling/maintenance/insurance, food and that's about it. Six months of that isn't very much. I say put 20-25% of your paycheck into your emergency fund and never stop. I know inflation is a problem but I am a firm believer that there's no such thing as "overfunding" an emergency fund.

Edited August 14, 2022 by biggie.

[biggie.]

ALWAYS go into a job with an exit plan; I continue to apply for jobs even after accepting an offer. Here's why:

1. Most jobs are at-will employment; they can get rid of you whenever and for whatever reason. It can take weeks or even months for an employer to respond to your application, so you don't want to scramble and settle for another job if your boss is getting aggressive to you. By applying for jobs early it gives you the ability to leave on YOUR terms and expand your network. Remember: it's easier to switch to pistol rather than reload.

2. Changing jobs is the best way to make more money. "Being loyal" to your employer back in the day made sense because they incentivized you to stay via pensions and generous raises; that's not the case anymore. "Raises" these days don't come close to catching up with inflation so you literally lose money by staying at your job.

Edited August 14, 2022 by biggie.

[LETSGOBROWNIES]

2 hours ago, biggie. said:

I say go new if you plan on holding onto the vehicle until it becomes a net negative. Big advice when it comes to vehicles is start saving for the new car as soon as you get the new one. I have a 10 year old Civic that's in outstanding shape and I have a side hustle that feeds my new car fund. Unless something catastrophic happens, by the time the Civic net negs me (which may be a while because they're road roaches if you take care of them) I'll have enough in the new car fund to where either I won't be making payments for very long or even outright buy the car.

I prefer new to used myself.  I have no clue how the previous owner treated the vehicle and how you drive and how you maintain a vehicle are huge components to longevity/reliability.

2 hours ago, biggie. said:

 

My only issue with the 6 months rule is that it's relative to everyone. I live in the barracks with little to no bills. On top of my head I have Internet, YT Premium, car fueling/maintenance/insurance, food and that's about it. Six months of that isn't very much. I say put 20-25% of your paycheck into your emergency fund and never stop. I know inflation is a problem but I am a firm believer that there's no such thing as "overfunding" an emergency fund.

If you have more than 3-6 months it’s not really an emergency fund at that point, it’s an unnecessarily large amount of cash that’s not earning dividends or growing. That’s not to say having cash is a bad thing, but funding something “forever” will add up.  I’m never going to have 100-200k in cash just because.

[LETSGOBROWNIES]

1 hour ago, biggie. said:

ALWAYS go into a job with an exit plan; I continue to apply for jobs even after accepting an offer. Here's why:

1. Most jobs are at-will employment; they can get rid of you whenever and for whatever reason. It can take weeks or even months for an employer to respond to your application, so you don't want to scramble and settle for another job if your boss is getting aggressive to you. By applying for jobs early it gives you the ability to leave on YOUR terms and expand your network. Remember: it's easier to switch to pistol rather than reload.

2. Changing jobs is the best way to make more money. "Being loyal" to your employer back in the day made sense because they incentivized you to stay via pensions and generous raises; that's not the case anymore. "Raises" these days don't come close to catching up with inflation so you literally lose money by staying at your job.

This is entirely dependent on your field.

my wife and I have the same degree, same ability to get a job.  I’ve been with one company for years, she job hops.  I make significantly more.  My wage has been and continues to be top end of the job market and my job only gets easier as I do more administrative/supervisor work.

Im not necessarily disagreeing with your points, for some fields this is entirely true, but rather I’d just add to it by saying know your field, what the going rates are, what the perks are, etc.

I haven’t updated my resume in years and have no intention to, but I do make a point of seeing what’s out there, even if it’s just scrolling job listings and talking with former colleagues.

[BayRaider]

On 8/9/2022 at 4:01 PM, LETSGOBROWNIES said:

- open an HSA if you’re eligible and contribute as much as you can

Do HSA’s really make sense in California and New Jersey?

[LETSGOBROWNIES]

54 minutes ago, BayRaider said:

Do HSA’s really make sense in California and New Jersey?

Why wouldn’t they?  (Not being a jerk, just don’t know what the specific concern would be).

[BayRaider]

1 minute ago, LETSGOBROWNIES said:

Why wouldn’t they?  (Not being a jerk, just don’t know what the specific concern would be).

They are taxable in those two states.