Savings I Bonds November 2024: 1.20% Fixed Rate, 1.91% Inflation Rate (3.11% Total for First 6 Months)

Posted on October 31, 2024 // 1 Comment
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Update: Savings I Bonds bought from November 1, 2024 through April 30, 2025 will have a fixed rate of 1.20%, for a total rate of 3.11% for the first 6 months. As a quick and dirty comparison, the nominal yield on 5-year Treasury bonds is currently 4.15% and the real yield on 5-year TIPS is currently 1.77%.

Every existing I Bond will earn this inflation rate of ~1.91% eventually for 6 months; you will need to add your own fixed rate that was set based the initial purchase month. See you again in mid-April for the next early prediction for May 2025.

Original post:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2024 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what an October 2024 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2024 purchase.

New inflation rate prediction. March 2024 CPI-U was 312.332. September 2024 CPI-U was 315.301, for a semi-annual inflation rate of 0.95%. Using the official composite rate formula:

Composite rate formula: [Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

This results in the variable component of interest rate for the next 6 month cycle being ~1.90% to 1.91%, depending on the fixed rate.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month. (You should always sell at the very beginning of the month.)

Buying in October 2024. If you buy before the end of October, the fixed rate portion of I-Bonds will be 1.30%. You will be guaranteed a total interest rate of 1.30 + 2.98 = 4.28% for the next 6 months. For the 6 months after that, the total rate will be 1.30 + 1.91 = 3.21%.

Buying in November 2024. If you buy in November 2024, you will get ~1.91% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS with some reductions. My rough guess is somewhere between 0.9% and 1.2%. The current real yield on short-term TIPS is lower than it was during the last reset, when the fixed rate was set at 1.3%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your specific purchase month. Everyone will eventually get this variable rate. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? Between those two options, I would buy in October as you’ll likely get a higher fixed rate and a decent initial 6-month rate. However, I actually don’t plan to buy any savings bonds this year. The yields are simply not very interesting as compared to other options. Short-term, it’s better to go T-Bills with the state tax exemption. For my inflation-protected needs, I have been buying longer-term TIPS instead to lock in the higher current 2%+ real yields (in tax-deferred).

Unique features and considerations. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and potential tax benefits if used toward qualified educational expenses.

The main drawback is hassle. You can only buy new savings bonds through TreasuryDirect.gov, which is limited in its customer service resources and features. Conducting certain transactions may require a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. If your password is compromised, they will not replace any lost or stolen savings bonds. The juice may not be worth the squeeze when you can own individual Treasury bonds or TIPS within any full-service brokerage account. (Finding a bank that will redeem a physical paper savings bond at all can be difficult these days.)

Over the years, I have accumulated I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio. However, after converting all my paper bonds to electronic versions earlier this year, I have been selling the lower fixed rate bonds and reinvesting in 2%+ real yield TIPS.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. As of 2024. you can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. (No more tax refund savings bonds.) Technically, the purchase limits are per Social Security Number or Employer Identification Number. For those looking for another way to expand their purchasing power, that means you can also buy for a child, grandchild, LLC, or a trust.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can now only purchase them online at TreasuryDirect.gov. For more background, see the rest of my posts on savings bonds.

[Image: 1942 US Savings Bond poster – source]

Filed Under: Banking, Investing, Retirement, Savings Bonds //
Last updated: October 31, 2024
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Acorns Early 1% Match on Kid Custodial Accounts / Acorns Later 3% Match on IRA Contributions

Posted on October 30, 2024 // Leave a Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Acorns, known for their “Round-Ups” on purchases that encourage recurring small savings of spare change and beyond, also has a match program for IRA contributions. They also just added a new match program for UTMA/UGMA custodial accounts for kids.

Acorns Early is their UTMA/UGMA custodial account for minors, and they will give a 1% match on contributions for Acorns Gold subscribers. These UTMA/UGMA custodial accounts have a few different wrinkles. They are a flexible brokerage account, not like 529 plans where you have to pick from a menu. They can be spent more flexibly as well, not just for qualified educational expenses. A certain amount of income is tax-free each year. However, money in a custodial account is the property of the minor and they assume full control of the account when they become of age.

For 2024, the gift tax exclusion if $18,000 per person ($36,000 from a couple), so the 1% match could be worth up to $180/$360 per kid per year (you can give more, but this is without potentially triggering a gift tax). Friends and family are allowed to contribute as well.

Acorns Later is their IRA account, and they give a 3% match on contributions for Acorns Gold subscribers. Per the 2024 contribution limits, $7,000 x 3% = $210 and $8,000 x 3% = $240 (Age 50+). There is a 4-year hold period.

Acorns Gold costs $12 a month (first month free) and is their highest premium tier with other various perks. So you’d have to balance it all out for your situation.

Filed Under: College & Education, Deals & Offers, Investing, Retirement //
Last updated: October 30, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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IRA and 401k Accounts Can Earn You 30% More After 40 Years

Posted on October 29, 2024 // 13 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

We’re all told that we should use IRA and 401k accounts to save for retirement due to their great tax benefits. But how valuable exactly are those benefits? 🤔 A huge difference? A little difference? This Morningstar article crunches some numbers for “traditional” pre-tax IRA/401ks within a broadly-representative tax situation and three example portfolios. (Although the benefits should be basically the same for Roth accounts, as they end up assuming the same tax rate during the working and retirement years.)

A one-time $5,000 contribution (pre-tax) is invested for 40 years within both the tax-deferred IRA/401k and a taxable brokerage account. The three example portfolios are “100% zero-dividend stocks”, “100% stock index”, and “60% stocks/40% bonds balanced” – essentially most to least tax-efficient. All are assumed to return 8% annually. Here are the results:

Here is the conclusion, quoted directly from the article:

To address this article’s original question, for investments made over a full working career, from age 25 to 65, IRA/401(k) accounts improve the final aftertax value of the study’s assets by 17% for a no-dividend portfolio, 30% for a stock market index fund, and 44% for a low-turnover balanced fund. Those figures, of course, will vary according to personal circumstances, but I conducted enough offscreen spreadsheet tests, using different tax brackets, to conclude that they are broadly representative.

As you might expect, the advantage is greater when the portfolio is less tax-efficient. The more something spins off dividends, capital gains, or interest, the more it should try to go in the tax-deferred bucket.

If you assume the use of the most popular target date retirement funds, they are 90% to 100% stock market index for the majority of the working years (25-65). So there you have it. A 30% boost is a reasonable estimate for most people to carry around in their heads. Roughly 1/3rd more. That’s a lot!

In short, IRA/401(k) plans are a very good deal. And should the latter offer a company match, they become a truly great deal.

Filed Under: Investing, Retirement, Taxes //
Last updated: October 30, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Robinhood Gold Review: 1% Deposit Boost Ends 11/25/24

Posted on October 29, 2024 // 31 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Update October 2024: Well, that didn’t last very long. Right as competitors rush to copy the feature, Robinhood sends me a message that the last day to get your 1% Deposit Boost is November 25, 2024.

Update June 2024: The 1% Deposit Boost for Robinhood Gold subscribers is now live. As previously announced, the 1% boost is paid out gradually over 24 months on net new deposits. If you make future withdrawals, this may affect your unpaid boosts. If you were already paid a boost payment, it may affect the boost on future deposits. In other words, they are paying attention and it’s not simple to game by withdrawing your cash. You can find additional details on this FAQ page. The following deposits are eligible:

Standard bank account transfers (originated ACH)
Wires in
Direct deposit (non-originated ACH)
Debit card transfers (including Apple Pay)
Request for Payment (ex. Zelle or PayPal transfer)
Transfers from spending account
Transfers from IRA account

I tested it out with a $500 deposit with a debit card transfer via Apple Pay (for another 1%*). Hello, $0.21 a month! 💰 Here’s a screenshot. I’m already locked into a Robinhood relationship for 5 years with the expired IRA promo, so I will try to see how to best utilize this promo for the next 3 years.

(* Debit card deposit side note: I also stacked it with by making the deposit with Apple Pay linked to my 1% cash back debit card from Upgrade. This way, I’ll get another 1% on the $500. Now, this method should be used carefully and for deposits that you intend to invest at Robinhood, as I’ve read reports of Robinhood freezing accounts if this option is abused by depositing and immediately withdrawing. This works for me because I plan to invest smaller deposits there for 24 months to get the Robinhood 1% match anyway. Besides Upgrade, a few other places offer 1% cash back on debit card purchases, but Upgrade is also offering a $300 bonus which is noteworthy even if it is a fintech.)

Full review:

Robinhood recently held a Steve Jobs-esque product announcement about new upcoming features for their Robinhood Gold paid membership tier ($5 a month or $50 per year upfront). Here are the highlights of the new features:

  • 1% match on all deposits. Called “Unlimited Deposit Boost”, Gold members will get a 1% match on all incoming deposits. For example, if you transfer $500 every month to invest at Robinhood, they will give you an extra $5 a month to invest. If you transfer in $100,000, they will give you $1,000. Doled out over a 2-year period if you keep your deposits there during that time.
  • 3% cash back on all categories with their new credit card. Redeems directly into a Robinhood account. Can create virtual numbers and extra cards for family members. No annual fee, but does require Gold membership.
  • New customizable user interface. One of Robinhood’s strengths has always been it’s modern user interface. That’s always been countered by their fintech-average level of customer service.

Here are the existing Robinhood Gold features:

  • 5% APY on cash sweep deposits. (1.5% APY without Gold until May 2024, then 0.01% APY after that.)
  • $1,000 in free margin ($2,000 until 8/18/24).
  • 3% match on annual IRA contributions. (1% match without Gold.) 5-year lock-up period. This is meant to be a recurring thing. See FAQ for details.
  • 3% match on incoming IRA transfers and rollover amounts (ended 4/30/24). This WAS a limited-time offer and potentially huge for those with big IRAs. 5-year lock-up period. See link for details.
  • Bigger instant deposits. Instant Deposit eliminates the three-day wait period for funds to transfer from your bank into Robinhood. With Gold, customers can get larger Instant Deposits of up to $50,000 depending on their brokerage account balance and status.
  • Free premium stock reports from Morningstar. Gold members get unlimited access to Morningstar’s stock research reports. These reports are available for approximately 1,700 stocks and are updated frequently to reflect important company events.
  • Level II market data from Nasdaq. Level II market data shows multiple bid and ask prices from Nasdaq for any given security so investors can better determine the availability or desire for a security at a certain price.

The hottest deal WAS the 3% match on incoming 401k rollovers and IRA transfers. I participated for an $8,000+ payout and am now stuck in its 5-year lock-up period. They’ve added billions of new assets with this promotion.

The second hottest deal is the new 1% unlimited deposit match, doled out over a 2-year period. I find it a very clever way to keep customers locked-into their Robinhood accounts AND keep them paying for a Robinhood Gold subscription. Don’t be surprised if the price of Gold goes up within the next year or so!

Deposit boost is divided into 24 monthly payouts. To earn your full boost, hold or invest your brokerage deposits for 2 years. If you cancel Gold, you’ll lose future payouts you haven’t earned yet.

The third hottest deal is the 3% cash back credit card, even though the credit card is getting the most press attention. 3% cash back with no annual fee is certainly noteworthy, but the card also doesn’t have an upfront sign-up bonus (and technically requires Gold at $50/$60 a year). If you currently have a 2% cash back card and spend even $50,000 a year on your credit card, 1% more is only $500 a year in extra cash back.

Meanwhile, I don’t spend that much on any single card (due to other better promos that will earn me $500+ upfront and the equivalent of more than 3% back) and I already get 2.6% back from my Bank of America credit card with Preferred Rewards. I like the idea of simple 3% cash back, but not quite worth a credit pull for me (we’ll see how long it lasts, since 3% has historically been too high to last).

If you are one of the first 5,000 people to refer 10 people to Robinhood Gold, apparently they will send you a credit card made of actual gold. After reading the terms closely, even if I do get enough referrals for the “Solid Gold” card, I’ll get a 1099 for over $1,000. If they run out of Gold cards, you just get the cash, but there doesn’t seem to be an option to simply decline and opt for the cash. I’m not interested in paying $400 in taxes for a gaudy 10 karat credit card.

Filed Under: Deals & Offers, Investing //
Last updated: October 29, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

SoFi Invest: 1% Match on Recurring Deposits to Brokerage or IRA

Posted on October 27, 2024 // 3 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

SoFi Plus is now offering an unlimited 1% match on all recurring SoFi Invest deposits. This includes their self-directed “active” or robo-advisor “automated” accounts. There is a two-year minimum hold requirement. Both taxable brokerage and IRAs are eligible, and this benefit may be stacked the with SoFi Invest 1% match on IRA contributions.

You must be a member of SoFi Plus, their premium status that requires opening both a SoFi Checking and Savings account and then setting up a monthly direct deposit into either account. However, that direct deposit can be any amount, as little as $1.

New to SoFi? Take advantage of the following sign-up bonuses first:

  • SoFi Checking Referral Offer: Up to $325 new user bonus. Open a new SoFi Money account and add at least $10 to your account within 5 days, and get $25. Then get up to $300 additional bonus with qualifying direct deposit. Plus up to 4.30% APY.
  • SoFi Invest Referral Offer: $25 new user bonus. Brokerage account. Open an Active Investing account with $10 or more, and you’ll get $25 in stock.

After you have your accounts set up and have qualified for SoFi Plus status (it’ll show in your app after the direct deposit posts), here is how to set up a recurring deposit per their FAQ:

There are two ways to set up a recurring deposit:

1. Set up a weekly, biweekly, or monthly ACH transfer into your SoFi Invest® account. You can do this by adding cash to your Invest account and changing the frequency from “one-time, today” to recurring on a weekly, bi-weekly, or monthly cadence.

2. If you have Autopilot through a SoFi Checking & Savings account from SoFi Bank, N.A, you can use it to set up a recurring deposit into your Automated Invest (SoFi Wealth, LLC ) account. Afterwards, click the “Set up Autopilot” button to start your recurring investment. Next, select the dollar amount or percentage you want to invest from each paycheck, and we’ll automatically transfer it into your new account.

Remember that you get the match for the deposit of funds, and it must stay there for 2 years or they’ll try to claw it back. You’ll have to invest it separately by making a trade.

The 1% match is technically paid out in SoFi rewards points (1 point = $0.01), but you can set it to auto-convert to cash into a designated SoFi account every month (that’s what I do). The match will be paid out within two weeks of the end of each calendar month.

This is structured very similarly to Robinhood’s “1% Deposit Boost”, down to the 2-year hold period. You don’t need a checking account or direct deposit at Robinhood, but it does require an active Robinhood Gold subscription at $5 per month ($60 a year).

Here are more details on other SoFi promotions, including their 2.2% cash back credit card and $300 Personal Loan bonus.

Filed Under: Deals & Offers, Investing, Retirement //
Last updated: October 27, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

SoFi Invest: 1% IRA Match on Both 401k Rollovers and Contributions

Posted on October 27, 2024 // 5 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Updated October 2024. SoFi Invest has brought back their an uncapped 1% match on 401k-to-IRA rollovers ($20,000 minimum). It looks like this is meant as a semi-permanent addition to their 1% IRA contribution match, as there is no expiration date. There is a 2-year required hold period. Both new and existing SoFi IRA accountholders IRAs are eligible. For folks with big 401ks still sitting around at their old employers, this could be a very significant bonus. A $75,000 401(k) rollover would get you $750. A $300,000 401(k) rollover would get you $3,000.

Rollovers must be completed through Capitalize, which is a startup service that specializes in helping you rollover your assets; they’ll supposedly handle all the paperwork and phone calls. Here are the full terms and conditions.

401(k) Rollover Match: SoFi will match 1% of a customer’s 401(k) rollover of more than $20,000 into their newly opened SoFi IRA or existing SoFi IRA in good standing, facilitated via the Capitalize application (see Eligibility below), during the Offer Period. If a customer submits more than one rollover during the same month, the sum of the rollovers must be more than $20,000 to be eligible for the match. The rollover funds must be maintained in the IRA for two (2) years. Bonuses will be paid within 60 days of the last day of the month in which the rollover funds settle in your SoFi IRA account.

Example: If you complete a $75,000 rollover with Capitalize to a SoFi IRA during the Offer Period, you will be matched 1%, equaling $750.

Payment/match will be deposited into the IRA that 401(k) assets are rolled into. The match is treated as interest earned and does not impact contribution limits.

For members with existing SoFi IRAs, a 401(k) rollover must be completed via Capitalize utilizing this link (and provide their SoFi IRA account number).

Robinhood has a larger 3% match on IRA contributions, but they no longer offer a match on 401(k) rollovers at all. You also don’t need to sign up for Robinhood Gold (at $5 a month) and the required minimum hold period for Robinhood was 5 years (while this one is only two years).

In contrast, this SoFi promo does not appear to cover IRA-to-IRA rollovers, only 401k-to-IRA rollovers. (It appears that 403b accounts are treated as equivalent to 401k account by Capitalize, but I could be wrong. I’d confirm with them directly.)

SoFi uses Apex Clearing for the their brokerage backend, which I am not super-excited about due to their history of late and corrected 1099s, but many other smaller brokers use them as well. FirsTrade, M1, Axos Invest, Stash, Public, and WeBull also use(d) Apex Clearing.

I’ve done several other SoFi offers in the past, and I’ve found them to be reliable in posting the bonuses. Here are some other SoFi offers:

Filed Under: Deals & Offers, Investing, Retirement //
Last updated: October 27, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Should You Adjust Your Target Asset Allocation For Future Taxes?

Posted on October 20, 2024 // Leave a Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

When you add up your assets and liabilities to come up with your net worth, do you adjust the numbers for taxes? The amounts in your Traditional 401ks and IRAs may be shrunk significantly upon eventual withdrawal due to income taxes. You never paid taxes on them upfront, so it makes sense that they are a bit “inflated” during your accumulation phase.

The academic paper Kentucky Windage for Asset Allocation by Jennings and Payne suggests that you should adjust your target asset allocation now in order to hit you goal more accurately in the end. This chart from the paper illustrates the potential effect of taxes on asset allocation:

“Kentucky windage” refers to the practice in shooting to aim upwind of the target in order to compensate for the effect of windage. For example, if the wind is blowing to the right, you’d aim a little left of the target.

For example, if your target is 60% stocks and 40% bonds but you have a lot of bonds being held in your traditional 401k, you should realize that will end up as 70/30 stocks/bonds after-taxes. Therefore, you should “aim” for 50/50 stocks/bonds, in order to truly end up at 60/40. Here’s another illustration from the paper:

Adjusting for taxes sounds like the proper thing to do, but I also found that their example of a 10% shift to be pretty extreme. The actual result is highly dependent on your specific asset class locations and tax brackets. Notice that the chart above assumed no tax hit on a “Stocks outside IRA” taxable account, but in reality there may be a lot of unrealized capital gains. For my own situation, I would estimate less than 5% in after-tax “drift”. Sure, I might still try to correct for that, but under 5% starts getting into noise territory. My target asset allocation may change independently over time for other reasons, or it might just change that much due to a stock market drop (or rise). But if your portfolio is heavily in pre-tax accounts, it’s something to consider.

Photo by Balint Mendlik on Unsplash

Filed Under: Investing, Retirement //
Last updated: October 20, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

How to Convert Vanguard Mutual Funds to Vanguard ETF Equivalents Online 2024

Posted on October 17, 2024 // 11 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Earlier this year, I discussed why I decided to convert my Vanguard mutual fund to ETFs. I don’t regret the decision, and some of those portable Vanguard ETFs later went to Robinhood for a $8,000 payday 💰 (that offer is back again this week…). At the time, the only way to convert was to call into Vanguard and listen to a lot of disclosures over the phone. As of late 2024, you can again convert Vanguard mutual funds to their ETF equivalent directly on the Vanguard.com brokerage website.

However, the feature is somewhat hidden, as a search for “convert mutual funds to ETF” does not come up with a useful answer, even those it comes up as a predicted search request:

Hopefully this quick how-to will spare you some wasted time. After you log in to your Vanguard account, look for the “Transact” menu option on the top search bar. See screenshot. After that, click on “Buy & Sell”. (It won’t show up as an option under the “Transact” option in other parts of the site.)

After that, you have to look for a smaller text link that says “Convert Vanguard mutual funds to ETFs”.

This should bring you finally to the main conversion page:

There are some disclosures; I have copied them below for reference. After that, you will locate the mutual funds you want to convert. The conversion should happen either same-day or next-day. Afterward, I would double-check to make sure your cost basis is carried over properly.

– Requests received prior to the New York Stock Exchange close (usually 4 PM EST) will be processed that day. Requests after this time will be processed the next trading day. Mutual Fund dividend payments at or near the time of conversion may delay the process.

– An ETF conversion is irreversible – Vanguard ETF shares cannot be converted back to Vanguard mutual fund shares. If you decide in the future to sell your Vanguard ETF shares in order to repurchase Vanguard mutual fund shares, that transaction could be taxable in a non-retirement account and fund minimums must be met.
Certain mutual fund account options will not apply or will need to be reestablished following the conversion (including some distribution and money transfer options).

– An ETF conversion will be processed based on the relative net asset values of the Vanguard mutual fund and the Vanguard ETF.

COST BASIS INFORMATION FOR NON-RETIREMENT ACCOUNTS:
– If you are not already locked into the average cost method by a sale, transfer, partial conversion or other disposition of your Vanguard mutual fund shares, we’ll have you revoke the average cost method for any eligible shares of Vanguard mutual funds and apply the First In First Out (FIFO) cost basis method prior to this conversion to the ETF share class.

– If you are already locked into the average cost method by a sale, transfer, partial conversion or other disposition of your Vanguard mutual fund shares, we’ll have you exit the average cost method for any eligible shares of Vanguard mutual funds and apply the FIFO cost basis method prior to this conversion to the ETF share class. This means share lots acquired prior to the conversion will be listed individually with the averaged cost.

– By clicking submit you agree to convert your mutual fund shares to the ETF share class and are instructing Vanguard to revoke your average cost election.

Here’s what is inside the “Learn More” link:

– Vanguard Brokerage is required to send you an ETF prospectus for each mutual fund converted to an ETF. The prospectuses will be sent according to your mailing preferences.

– There is no fee for Vanguard Brokerage clients to convert Vanguard mutual fund shares to Vanguard ETFs of the same holding.

– Vanguard will apply the IRS default method of FIFO to ETF holdings. With this method, the shares you bought first will automatically be the first shares relieved.

– If you are already invested in the ETF share class for the fund to which you are converting your mutual fund shares, and you have elected a cost basis method other than FIFO the shares you receive as result of this conversion will follow that election.
– If you are not already invested in the ETF share class for the fund to which you are converting, Vanguard will apply the default method of FIFO for new ETF shares you receive as a result of this conversion. You can select a different cost basis method after the conversion.

*Noncovered shares: The average cost method will carry over to the ETF for the non-covered shares, but you are free to report the shares using another method on your tax form. The cost basis of noncovered shares is sent to you for informational purposes only and will not be reported to the IRS by Vanguard. You are responsible for reporting the sale of noncovered shares.

Filed Under: Investing //
Last updated: October 17, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

S&P 500 Return Components: P/E Ratio Expansion vs. Earnings Growth

Posted on October 16, 2024 // 2 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The S&P 500 has been on a great run recently, up around 30% over the last 12 months! Most of us are probably pretty satisfied with our brokerage accounts right now. (I know I am.) But where is it coming from? The total return of the S&P 500 can be broken down into three components:

Total Return = Earnings Growth + Dividend Yield ± P/E Multiple Changes

In other words, business profits could go up (or down), the dividends that get mailed out could go up or down, and how much investors are willing to pay for each bit of profit could change. This last one, the P/E “Multiple” is rather fickle, and P/E ratios can go up and down, but rarely stays highly elevated for extended periods of time.

Above is the historical S&P 500 P/E ratio chart from Multpl. The last time I wrote a post like this was when the screenshot said the P/E ratio rounded off to 35. Today it is 30. So the P/E ratio has been even higher in the recent past… but it also didn’t stay that high for very long.

Here is a very handy chart that breaks down the S&P 500 return over the last few years. Credit to @Sonusvarghese via Abnormal Returns.

The chart itself says “profit growth has been driving returns” and definitely that is true over the longer run, but it is also important to appreciate how much P/E ratio changes can affect future returns, even if profit growth continues. This is because the effect of P/E ratio doesn’t just go to zero when our collective optimism cools a bit – it has the same power in reverse.

Take all of 2024 year-to-date. Yes, profit growth added 11%, but multiple growth added 10%. The P/E ratio went from ~25 to ~30. If for the next 9 months, profits kept growing at the same positive pace, but the P/E ratio simply went back to where it was at the beginning of 2024, then your total return would be only 1% over that time period. The +10% boost comes back as a -10% haircut.

If for the next 9 months, profits kept steady, but the P/E ratio simply went back to where it was at the beginning of 2024, then your total return would be negative 10% over that time period.

Or the P/E ratio could zoom off to 35 again. Who knows. I’m not talking about market timing, and I remain a buy-and-hold investor that avoids daily market noise, but I do poke my head up once in a while. Mostly, I use these check-ins to stay calm when things get a little fizzy or a little panicky.

See also: S&P 500 Returns by Components 1900-2020

Filed Under: Investing //
Last updated: October 16, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best Interest Rates on Cash Roundup – October 2024

Posted on October 15, 2024 // 9 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my monthly roundup of the best interest rates on cash as of October 2024, roughly sorted from shortest to longest maturities. There are lesser-known opportunities available to individual investors, often earning more money while keeping the same level of safety by moving to another FDIC-insured bank or NCUA-insured credit union. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 10/15/2024.

TL;DR: Rates are still dropping at all maturities, from savings accounts outward. Still some 5%+ savings accounts. Still some 4%+ APY 5-year CDs. Compare against Treasury bills and bonds at every maturity, taking into account state tax exemption. I no longer recommend fintech companies due to the possibility of loss due to poor recordkeeping and/or fraud.

High-yield savings accounts
Since the huge megabanks still pay essentially no interest, everyone should at least have a separate, no-fee online savings account to piggy-back onto your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates and solid user experience. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • The top rates at the moment are from newcomers Pibank at 5.50% APY and TIMBR at 5.25% APY. I have no personal experience with either, but they are the top rates at the moment. Most others have dropped at least a little. For example, CIT Platinum Savings is now at 4.70% APY with $5,000+ balance.
  • SoFi Bank is at 4.30% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit of any amount (even $1) each month for the higher APY. SoFi has historically competitive rates and full banking features. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • Here is a limited survey of high-yield savings accounts. They aren’t the top rates, but a group that have historically kept it relatively competitive such that I like to track their history.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (plan to buy a house soon, just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 4.20% APY with a $500 minimum deposit. Farmer’s Insurance FCU has 9-month No Penalty CD at 4.50% APY with a $1,000 minimum deposit. Consider opening multiple CDs in smaller increments for more flexibility.
  • Langley Federal Credit Union has a 10-month certificate special at 5.25% APY ($500 min, $50,000 max). This is a promo for new members only. Anyone can join this credit union nationwide; you must maintain $5 in their share savings account. Early withdrawal penalty is 90 days of interest.

Money market mutual funds
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). Note: Money market mutual funds are highly-regulated, but ultimately not FDIC-insured, so I would still stick with highly reputable firms.

  • Vanguard Federal Money Market Fund (VMFXX) is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 4.80% (changes daily, but also works out to a compound yield of 4.91%, which is better for comparing against APY). Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • Vanguard Treasury Money Market Fund (VUSXX) is an alternative money market fund which you must manually purchase, but the interest will be mostly (80% for 2023 tax year) exempt from state and local income taxes because it comes from qualifying US government obligations. Current SEC yield of 4.86% (compound yield of 4.97%).

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks and are fully backed by the US government. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes, which can make a significant difference in your effective yield.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 10/15/24, a new 4-week T-Bill had the equivalent of 4.80% annualized interest and a 52-week T-Bill had the equivalent of 4.19% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.08% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 4.85% SEC yield and effective duration of 0.08 years.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds is $10,000 per Social Security Number, available online at TreasuryDirect.gov.

  • “I Bonds” bought between May 2024 and October 2024 will earn a 4.28% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-October 2024, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. This is the mid-October post. I will have another post up at that time.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • OnPath Federal Credit Union (my review) pays 7.00% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, and login to online or mobile banking once per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization. You can also get a $100 Visa Reward card when you open a new account and make qualifying transactions.
  • Genisys Credit Union pays 6.75% APY on up to $7,500 if you make 10 debit card purchases of $5+ each per statement cycle, and opt into online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 12 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Andrews Federal Credit Union pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit or ACH transaction per statement cycle. Anyone can join this credit union via partner organization.
  • Pelican State Credit Union pays 6.05% APY on up to $20,000 if you make 15 debit card purchases, opt into online statements, log into your account at least once, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • Orion Federal Credit Union pays 6.00% APY on up to $10,000 if you make electronic deposits of $500+ each month (ACH transfers count) and spend $500+ on your Orion debit or credit card each month. Anyone can join this credit union via $10 membership fee to partner organization membership.
  • All America/Redneck Bank pays 4.65% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Synchrony Bank has a 5-year certificate at 4.00% APY (no minimum), 4-year at 4.00% APY, 3-year at 4.00% APY, 2-year at 3.90% APY, and 1-year at 4.40% APY. Early withdrawal penalty for the 4-year and 5-year is 365 days of interest.
  • Advancial Federal Credit Union has has a 5-year certificate at 4.09% APY (higher $50,000 min). Early withdrawal penalty for the 5-year is 365 days of interest. Anyone nationwide should be able to join via membership with partner organization US Dog Agility Association, but I would call or check first.
  • State Department FCU has a 60-month CD at at 3.91% APY ($500 min) or 4.11% APY (jumbo $100,000 min). Early withdrawal penalty for the 5-year is 360 days of interest. Membership is open nationwide by agreeing to join the American Consumer Council (ACC) membership. Try promo code “consumer” when signing up at ACC for a free membership.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I see a 5-year non-callable CD at 3.75 to 3.80% APY (callable: no, call protection: yes). Be warned that both Vanguard and Fidelity will list higher rates from callable CDs, which importantly means they can call back your CD if rates drop later. (Issuers have indeed started calling some of their old 5%+ CDs as of Fall 2024.)

Longer-term Instruments
I’d use these with caution due to increased interest rate risk (tbh, I don’t use them at all), but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CDs at 3.75% (non-callable) vs. 4.03% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.

All rates were checked as of 10/15/2024.

Photo by Giorgio Trovato on Unsplash

Filed Under: Banking, Deals & Offers, Investing // Tagged:
Last updated: October 16, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Robinhood HOOD Week Promo: 3% IRA, 2% Margin, 1% ACAT Bonus (10/16-10/27)

Posted on October 10, 2024 // 20 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Robinhood brokerage app is jumping on the week-long promo trend and just teased Robinhood HOOD Week (“HOOD” is their stock symbol) from October 16, 2024 to October 27, 2024. The front page is vague but inside the full terms you can see exactly what they will be offering. They are still aggressively collecting assets, and are rolling back out some very competitive cash bonuses when you transfer in assets from external brokerages:

  • 1% bonus on ACATS transfers to your Robinhood joint or individual investing account from an external brokerage. Two-year minimum hold period.
  • 2% bonus on ACATS transfers with a margin balance of $10,000 or more to your Robinhood joint or individual investing account from an external brokerage. Two-year minimum hold period.
  • 3% on ACATS transfers to your Robinhood IRA with a Robinhood Gold subscription, excluding rollovers. Five-year minimum hold period.

Hodl on, though! Transfers must be initiated between 12 AM ET on October 16, 2024 and 11:59 PM ET on October 27, 2024.

Robinhood will also reimburse up to $75 in outgoing transfer fees with transfers of $7,500 or more. This is a one-time reimbursement per account type, per external brokerage.

The asset retention requirement requires that you maintain the transferred assets in your Robinhood account for at least 2 years for the 1% or 2% bonuses and 5 years for the 3% bonus. If you withdraw assets and the balance falls below the initial transfer amount, Robinhood reserves the right to reduce or revoke your bonus, in full or in part.

The 2% bonus with margin balances is an interesting new wrinkle, and it could very easily be worth it “create” a margin balance ahead of time in preparation for the promo week. You’d want to withdraw your cash, and then buy something on margin – even SGOV or another Treasury Bill ETF would work. Paying even 12% interest on $10,000 of margin for an entire month would only be $100 of interest. An extra 1% on $100,000 transferred is worth $1,000, an extra 1% of $1 million is $10,000, and so on.

I didn’t even know you were allowed to transfer margin balances, but apparently that is one of the features of the ACATS system. I suppose it’s like a balance transfer between credit cards, and Robinhood really wants your interest-accruing debt.

I’ve already written multiple articles about past flavors of these Robinhood promos, and I participated in the 3% IRA bonus previously. As always, read through the terms and understand that you’ll be locked into Robinhood for two to five years. Since I’m already partially locked-in, I am pondering that new 2% margin transfer bonus. 🤔

(Anyone understand the meaning of the cherry?)

Filed Under: Banking, Deals & Offers, Investing //
Last updated: October 10, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

MMB Portfolio Dividend & Interest Income Update – October 2024 (Q3)

Posted on October 7, 2024 // Leave a Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my quarterly income update as a companion post to my October 2024 asset allocation & performance update. I prefer to track the income produced as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. Here’s a related quote from Jack Bogle (source):

The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated after 2024 Q2 (via Yardeni Research):

That is a much smoother ride than the price index. I imagine my portfolio as a factory that churns out dollar bills, or a tree that gives dividend fruit.

Why I like tracking dividends in general. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. They have explicitly decided that they don’t need this money to improve their business, and that it would be better to distribute to shareholders. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. There is also a growing trend towards buybacks, partially because they are easier to discontinue. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total US Stock ETF (VTI) via StockAnalysis.com.

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

The dividend yield (dividends divided by price) also serve as a rough valuation metric. When stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

In the case of REITs, they are legally required to distribute at least 90 percent of their taxable income to shareholders as dividends. Historically, about half of the total return from REITs is from this dividend income.

Finally, the last component comes from interest from bonds and cash. This will obviously vary with the prevailing interest rates, the real rates on TIPS, and the current rate of inflation. In 2024, we are finally back to getting paid a small percentage more than inflation on our cash.

Dividend and interest income from my specific asset allocation. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 10/7/24), which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed (usually zero for index funds) over the same period. My TTM portfolio yield is now roughly 2.38%.

2.38% is the lowest TTM yield that my portfolio has been since 2021. So even though the value of my portfolio is much higher than a year or two ago, the actual amount of income distributed hasn’t kept up. As you can see from my total annual income tracker, my actual income from this portfolio has been mostly steady since mid-2022 (when interest rates started to rise again). Again, this keeps me from getting too euphoric from the market’s gains. A lot of it is just P/E ratio expansion, which can just as easily be followed by P/E ratio contraction.

What about the 4% rule? For big-picture purposes, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). Too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens!

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving your skillset, networking, and/or looking for asymmetrical entrepreneurial opportunities where you have an ownership interest.

As a semi-retired investor that has been partially supported by portfolio income for a while, I find that tracking income makes more tangible sense in my mind. Our dividends and interest income are not automatically reinvested. They are simply another “paycheck”. As with our other variable paychecks, we can choose to either spend it or invest it again to compound things more quickly. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on. You don’t have to wait until you hit a huge magic number. FIRE is Life!

Filed Under: Goals, Investing, Retirement //
Last updated: October 7, 2024
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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