I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer.
I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages.
I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1].
If you live in the US you could buy Series I Savings Bonds from the government. They have a fixed rate which is set when you buy them (currently very low) but they also return an additional rate that varies over time based on inflation. (There are also mutual funds out there like e.g. the Vanguard Inflation Protected Securities fund that are supposed to guard against inflation too.)
In the long term, I would assume these will not give you anywhere near as good returns as other higher-risk investment options, but they might work for you depending on what you're looking for.
> I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond.
Why are you looking for a single, magical asset class with superior risk-adjusted returns? If you invest in a diversified portfolio of stocks, government bonds, real assets and cash, you'll find it earns a solid rate of return with less volatility.
In inflation-adjusted terms, it’s not that exciting: so do other fixed assets that aren’t you lending a random bank cash, such as US/Canada treasurys / government bonds.
The point is that these other instruments don’t have the same risks as lending large amounts of cash to a bank, or even just holding large amounts of cash under your proverbial mattress.
If you’re chasing returns, you’ll need to take risks (and you probably won’t be interested in a 5% savings account in this sort of inflationary environment).
that's why the interest rates for government bonds, at in the US, are so low - they're essentially risk free. the issue is the interest rates are so low they don't even beat inflation as far as I know
Nothing other than the fixed yield on savings bonds has been lousy for the last 15-20 years.
It’s backed by the full faith and credit of the US government and interest isn’t taxed until redemption, so it’s probably the safest/simplest investment for a retail saver that’s out there.
I agree for long-term investments a fund might be better (ex. in a retirement account mixed with equity funds) but if you bought those bond funds in the past few years and sold them you might not have made much of a return. For example in the past 1 year the price of VGSH went from 60.83 to 59.87 so you lost over 1% on the price change which cancels out most of the interest yield. My point is that for short-term savings in a rising rate environment this can work better.
One should certainly tailor their investments to their own risk tolerance. But there are better investments even with very low risk levels. Money market, CDs, gov't bonds, and high-grade corporate bonds are all options that give better returns than savings accounts with minimal risk (well, before some gov't bonds were negative rate, anyway).
What is the best thing to do with my savings?
I am thinking about investing, and read up on it.
One thing I don't understand is where to put money to minimize the impact of a recession. Government bonds? But then Graham says, I think, bonds prices also rise in a bull market, and fall afterwards.
The yield curve is inverted so short term treasuries are great right now. There’s little reason to have a typical savings or money market account or even a money market / bill fund when you can just put together a 3 month treasury ladder and get 5.25+%.
Longer term treasury bonds don’t seem so smart given the threat of sustained inflation. If you’re looking for longer term fixed income, maybe TIPS or Series I bonds are a good choice. I bond rates aren’t as great as they were a few years ago, but until end of this month you can take advantage of 5.27%, including a fixed rate component of 1.30% which is a 17 year high. You‘ve got a bond that will beat inflation by 1+% for 30 years. Not too bad.
US Bonds are considered basically the safest investment in the world, so in a condition where they lose you money, they are still better than either not investing (losing even more to inflation) or risking on something with higher returns.
But I guess the answer still stands, from investor(especially regular investor) point of view, where can you park your money that is likely to generate return on part/slightly higher than inflation, while not investing into too high risk assets? There are not many options available, ie t-bonds etc are not an option for many
Good point about bonds. I was thinking of splitting that 55%-60% between bonds and something even safer (money market?). I haven't found anything easy to invest in that currently gives returns above inflation. Any suggestions?
I do understand the risk to the monetary system. That's why I'm advocating diversifying into precious metals and commodities as well. That's something that seems rarely mentioned in investment advice, but ETFs make it relatively easy now.
The Treasury sells savings bonds that are at 7.12% right now. It's not the same thing as a savings account and you can't put a million dollars in, but you can still get a good interest rate on smaller amounts.
People can learn how to use Treasurydirect.gov instead of using their bank as a lousy bond broker. Inflation protected bonds, that you can buy only $10k a year of are some of the highest yielding risk free investments that exist. Banks should just make money off fees and hold short duration Treasury bills only.
Other institutions that have LPs should lend to businesses, students and home owners.
I see where you are coming from. I didn't know about the bond situation. Is that US specific?
The idea is to go for whatever that is currently accepted as low risk. For example, if bonds are considered risky, maybe high interest saving accounts are the next best option. And you can adjust your retirement goals accordingly.
I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages.
I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1].
[1] https://www.treasury.gov/resource-center/data-chart-center/i...
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