I used to think getting 5.3% guaranteed on Wealthfront with boost was amazing — but just realized you have to pay marginal taxes on these gains each year by filing a 1099-INT. This isn’t something stock holders deal with due to conservative long-term capital gains capped at ~10-20%. Given that, the risk to reward is tilted towards just buying and holding ETFs, even in current interest climate. Am I missing something here? TC — 275k YOE — 1 NW: 300k —> 260k in Wealthfront + 40k 401 / Roth #personalfinance #investments #hysa #taxes
The market is relatively efficient. Liquidity & risk is factored into all asset returns.
What this guy said. Two caveats tho: efficient market is a theory only for retail investors. Like how Newtonian mechanics is only true for reasonable size objects. Some risks like holding individual stocks comes with idiosyncratic risks is not compensated risk and hence that risk isn't factored into returns
Just put excess cash in HYSA, like short-term savings or part of your emergency fund. Money you need to be able to access quickly. Anything more than that, put into longer-term investment vehicles (ETFs, whatever).
> Am I missing something here? Quite a lot actually. A good starting point is to read up on modern portfolio theory to get a better understanding of optimal risk adjusted returns. That’ll help you understand the role fixed income plays
Yoe = 1 and giving financial advise, noice 👍🏼
HYSA is not for investing. It’s a great place to keep your emergency fund in the long term or cash in the short term which you will invest eventually. E.g if someone is convinced the markets are going down in the short term (6-12 months max) or if you are interested in a stock which is too high now but you think will give you a better entry within a few months. The point of a HYSA is to get the max return (4-5%) for your cash which would otherwise sit in a checking or savings account losing value with inflation.
Hey guys, I just found out keeping all my money in a mattress might be a bad idea. I used to think this was genius way to avoid overdraft fees, but just realized there's this thing called "inflation" Any of y'all heard of this? What am I missing?
Yes you are correct. Returns and tax treatment are better for stocks. Hysa is for extra cash you need available. It's better than a traditional savings account. Most bonds have the same problem. They are lower yield and taxed as income
HYSA for your liquid needs. Basically your emergency fund which can be accessed at moments notice. Yeah ETFs are good for growing wealth but HYSA is just another place to park your cash with decent guaranteed returns. I consider it as money I wouldn’t have invested in the first place
Considering an HYSA a long term investment is a chimp brained move
HYSA is not for growth, it’s for short term goals. Also, it depends on your tax bracket it’s bad not extreme. Like short-term gain you may pay 27-35% tax and long term you will pay 18.8%. If you are using HYSA for growth purpose that’s your fault. It does not make it bad. You park fund in HYSA if you are planning to buy house in next 1-3 years or emergency fund or marriage expenses.