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Comment by jostmey | Hacker News Reader

Yeah, my interpretation is that people are not storing their wealth in dollars, which is a bad sign for the currency.

It's not so much that dollars are the problem, it's that there are more lucrative ways to store money, ways which actually get returns. Savings accounts today are just a slightly more secure way of hiding money under the bed. Whereas if you invest it in basically anything else, you'll have a much better chance of it increasing, with often times very low risk of it decreasing. Modern savings account plans are the real problem here.

Most Americans aren't constantly moving dollars between investment accounts to eek out more interest (a terrible idea for many reasons!). In a world of negative interest rates, US savings accounts aren't so bad. The problem is most don't have adequate savings.

What gives higher returns but near-zero risk?

Short-term federal debt funds like VFISX and VSGBX have very low risk and do better than most savings accounts. The risk is probably close enough to zero for most people, considering it's basically all interest rate risk on short-term U.S. federal government bonds.

Bonds, at least? Mutual funds that make use of bonds?

(This is a question, not an answer, by the way. I have no idea.)

Bond rates are low too and have transaction costs. Very poor substitute for a savings account with an emergency fund.

http://www.bloomberg.com/markets/rates-bonds/government-bond...

(.27% for 3 month treasuries, just .79% for 2 year)

Short-term, low-risk bonds (like T-bills) have super low interest rates also.

Longer-term bonds are significantly higher risk than a savings account.

Index funds, through a reputable and low-overhead fund like Vanguard's; you'll never do worse than the market. They can absolutely go down, so don't put any money in them that you might need right away, but as a long-term investment, they'll always give you a rate of return approximating the overall economy.

You're basically saying the same thing as I am.

I don't deny that there are better investment vehicles than a savings account. I'm just asking whether there is something of similarly low risk with a better interest rate. Stocks are definitely not lower-risk.

This isn't what "near-zero risk" means. Near-zero risk investments are things like savings accounts, CDs, and T-bills. Index funds that track stock-based indexes are intrinsically risky, as you yourself point out, unless you look at time scales of a decade or more.

Near-zero risk of what? If you mean "risk of decreasing in value", then checking and savings accounts aren't near-zero-risk either; cash tends to decrease in value over time due to inflation, and you're nearly guaranteed to lose money over time (though somewhat predictably). If you mean "risk of disappearing completely", then neither a savings account nor an index fund will do that.

A comment further up the thread asked for "very low risk"; the reply to that changed it to "near-zero risk".

Better to consider the type of risk you care about, and how much money you want associated with each type of risk. Checking accounts and index funds both make sense as part of an overall strategy. I don't know that savings accounts do, though, except perhaps as a purely organizational tool.

Risk is about uncertainty - how well you one can predict what will happen to the money.

Stocks are not low risk. Stocks are not low risk. It bears repeating.

Index funds aren't individual stocks. They're pretty low risk. If an index goes to 0, T-Bills, CDs, and cash won't be worth anything either, you'll need shotgun shells, generator fuel, and canned food.

Index funds are stocks. The market contracts - frequently. Over long periods of time its gone up.

See the chart below [0] - If you invested all your money in 1965, there is only a 8 year window at the end of the 90s where you would have averaged a 3% return per year. Much of the rest of the time you're looking at negative returns.

[0]: https://static01.nyt.com/packages/images/newsgraphics/2011/0...

If you invested at the worst time in the past century that would be bad. If you invested in T-bills or CDs you'd have gotten murdered by inflation in that period too. NYT piece you're referencing says the average annual return over 20 years is 4.1% net of taxes, fees, and inflation. Not too bad.

Treasury Series EE Bonds (~3.5% yield...)

These are vulnerable to changes in interest rates. If interest rates increase, their value drops.

They are guaranteed to double after 20 years (hence 3.5% rate).

To explain a bit more what I mean by interest rate risk: Imagine I buy $1000 in EE bonds today. Then tomorrow, conditions change, and the government starts selling 20-year bonds with a 7% rate. My bonds are now worth much less than $1000 -- no one would buy them from me on the open market, except at a substantial discount, since they could just buy the higher-yield ones for $1000.

These conditions that led to a higher interest rate are probably also leading to a higher inflation rate. So my $1000 is locked up for 20 years in an instrument where it's decreasing in real value.

Yes, I know that. EE Bonds are not intended to be that liquid, they are meant to be held to maturity.

In any case, my answer was only half-serious.

But you wanted to know "What gives higher returns but near-zero risk?" and assuming by "risk" you meant "default risk" there you go....a high interest low denomination savings instrument backed by the federal government.

Okay... so they're higher risk than a savings account.

Well, depends on what "risk" means...default risk? Inflation risk? How about currency risk? What if the dollar gets weaker? You need a totally different hedge for that...a savings account would not help.

You also nicely elide that since a savings account currently averages a 6 basis point APY[1], it's already giving an inflation adjusted negative return. So a savings account has gone past the "risk" stage to the "losing money" stage.

[1] https://www.fdic.gov/regulations/resources/rates/

In current dollars.

You're probably thinking to deeply about this. I think most people are "storing" their money in consumable assets that they are likely immediately consuming - aka broke. Thinking about what you have your money in is pretty high level for a lot of people I think.

Actually it's more like a very significant amount of people have the majority of their net worth "stored" in their homes.

https://www.census.gov/people/wealth/files/Wealth%20Highligh...

(Direct link to spreadsheet here: http://www.census.gov/people/wealth/files/Wealth_Tables_2011...)

It's kind of difficult to fully read this 2011 survey since "percent holding" and "median value" is in two separate tabs, and it's hard to get a good sense of correlations. But the spreadsheet seems to show:

- Almost 70% of people owned a savings account, with a median value of $2,450 overall.

- 29% of people own a checking account, with a median value of $600

- 85% of people own a motor vehicle, with a median value of about $6,800

- 65% of people own a home, with a median equity value of $80,000

- 42% of people have a 401k, with a median value of $30,000

- 29% of people have an IRA account, with a median value of $32,000.

By far, it appears that housing is the most valuable asset many people own; at least, in every category, the median for housing is higher (sometimes up to 6 times higher) than the median for a 401K account. Also, it seems that a far more percentage of people have houses compared to 401Ks, the next largest category with >$10K median assets.

Now, is it a bad sign? The only things I can say:

A) Houses are hardly a "liquid asset".

B) Home ownership for many reasons is declining (http://blogs.wsj.com/economics/2016/04/28/u-s-homeownership-...).

The later point makes me wondering if future generations' preparation for retirement may be impacted. The former is not a bad thing if you do have liquid assets for emergencies etc, but I can imagine there is a significant percentage which do not. (A 401K really isn't a great "liquid asset" for instance, and some probably don't have much of that.)

That percentage for checking accounts is extremely low, and suggests that half of homeowners don't have checking account, and only a third of car owners do.

I cant reconcile how that large of a discrepancy is possible. Surely some people inherited houses or cars, or paid literal cash, but it cant be that many.

edit: This FDIC report [0] from earlier this month suggests only 7% of households are "unbanked", meaning they dont have access to a bank account (doesn't specify what type). That number makes way more sense.

[0] https://fdic.gov/news/news/speeches/spsep0816.html

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