2018 Is A Lousy Year to Leave Your Money Where It Earns Nothing

2018 Is A Lousy Year to Leave Your Money Where It Earns Nothing

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Happy New Year!  2018 is going to be a great year.  Will it be another barnburner on the stock market like 2017?  Maybe, but you sure cannot bet everything on it.

What you can be sure of is that savings rates have moved up.   There are many online banks that are beginning the year paying 1.40% on savings accounts.   There are now many 1-year CD rates at or above 1.70%.  (Longer-term CD rates have also recently moved up and are worth watching in 2018, but we would begin the year by exercising some caution here.)   Depending where you live, you may even find local rates at banks and credit unions that are much higher.

For many years, I have heard the constant refrain.   “Why bother?   I may be making 0.01 at Chase or Citibank or Wells Fargo or Morgan Stanley or Merrill Lynch, but it just isn’t worth my time.”  I often hear this from people who have millions sitting in cash.

If you have $2 million spread across 8 or 9 online savings accounts and short-term CDs (to stay below FDIC and NCUA limits), you can easily earn $30,000 pre-tax in 2018 on this money - and more as rates go up from here.  Even if you are lucky enough to be in a high tax bracket and to live in a blue state and be severely impacted by the Trumpian tax law, you are still likely to net $16,000 or $17,000 after tax on this money.

We think that there is a lot you can do with that $16,000 or $17,000 in “free” money in 2018.  You can put it towards a new car, take your family on a trip to Hawaii or save for your kids’ education.   You could also give it to any small charity that will also be severely impacted by the tax changes.

It will take you 30 minutes online to open the accounts and set up the transfers.  Just don’t let the bank make (or take) the money for free for another year.

Make a New Years' Resolution and fix this now.

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Bitcoin and Blockchain: “That’s OK.  I Didn’t Really Understand It At First Either”

Bitcoin and Blockchain: “That’s OK. I Didn’t Really Understand It At First Either”

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I am old enough to have lived through 1999 and 2000.  Actually, I am old enough to say that it is part of my adult experience.  I worked in the internet and telecom sector then.   We were building real things and the world was being transformed by the internet and the new opportunities it was creating.  Was pets.com’s stock worth what it at then?  Or AOL?  Or Akamai?  Or Cisco?  We learned later in 2000 and 2001 that these companies didn’t have the value that the markets ascribed.  But, in many cases there was cash flow and these companies were transformational; they were changing our world.

In 2007 and 2008, the market again became dramatically overheated, largely due to over-lending on the part of the financial institutions.  I personally was fortunate and managed to sidestep the financial damage that many suffered.  I respect those who miscalculated though.  There was cash flow and the prospect of moving our country from one of 62% home ownership to one of 75% home ownership seemed transformational.

Fast forward to today.  With Bitcoin at $17,000 and all sorts “coins” and stocks geared to blockchain spiking in value, there is very little that appears transformational.  There seems to be a whole lot of commotion and a whole lot of opportunity to move money around outside of governmental oversight (with perhaps Russian and North Korean involvement).

But, Bitcoin has brought back out all of the people whom I know and who created late stage businesses in 1999 and 2007, companies that had little economic merit but were designed to piggy-back off of what became a frenzy.  They have again reappeared on CNBC, and by connecting with me on LinkedIn.  This time they aren’t talking about cash flows and economic transformation.  They are talking about Etherium and blockchain and the only thing they are saying is: “That’s OK.  I didn’t really understand it at first either.”

I am not going to get into the credibility or motives of these people.  They may manage to drive Bitcoin and all of its ancillaries a lot higher.  But, I don’t buy it; I do not believe nor understand adequately the hype or the foundational elements underlying the Bitcoin phenomenon.  And, I am not alone.  Consider it safe to say that I am not going to be trying to make my fortune on Bitcoin.  


New Tax "Cut" Not Really A Christmas Gift for America

New Tax "Cut" Not Really A Christmas Gift for America

The details of Donald Trump’s and Congressional Republicans’ tax cut have only just come out.  And, the details tell all.

First, I would not go out and celebrate, unless you:

  1. are in the real estate business
  2. run a large corporation
  3. have millions (many) in the bank and plan to die in the next 8 years
  4. are a wealthy investment manager
  5. are in the liquor business
  6. are a tax accountant

And, even then, those above have only an eight-year window before the new cuts expire for individuals (but not for corporations).  Eight years will go fast, and it could be much faster if the Democrats come into power in 2022 and reverse the tax cuts immediately. 

But, most of all, it is important to understand that this is not a middle class tax “cut” for needy Americans.  In fact, it is just the opposite.  The wealthiest, from extremely wealthy to very wealthy, are clearly those who win here.  And, the rest get a bone here and there, but nothing lasting and nothing that will seed the promise of continued and expansive economic growth.

So, be careful.  Do not listen to those who tell you the good times are here again.  Husband your resources and buy only what you need.  Invest with great caution with every market at exceptionally inflated levels, saving the rest in the highest yielding savings accounts and CD accounts.

And, remember that the best lesson gleaned from all this talk about a tax cut for all Americans is that Congress is out for itself and certainly not acting in the public’s interests.  In fact, all conservative principles about debt and taxes have been thrown out of the window to pass this bill.  

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