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Online Savings & Money Market Account Rates 2021

Online Savings & Money Market Account Rates

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Heads in the Sand

We all, everyone of us, have our heads in the sands.  Most of those who voted for Trump have yet to realize what they have wrought.  But they will.  The rest know now, but are unable to face the reality of it all. 

In fact, we are all trying with every fiber in our hearts to ignore the catastrophe that is about to happen.  It’s like an entire people in a sleep walk.  And that’s in the United States.  Beyond our borders, the populations of our allies are stunned too, contemplating the end of the world order as we know it.

And then John Lewis says the obvious, Trump put him down, and there is silence again.  We are a people in line, awaiting our turn in the crematoria.  We are too stunned and too afraid.  Too afraid even to think of parents, grandparents, children, grandchildren. 

We have brought this about ourselves.  We are not bold, daring and willing to put ourselves on the line – to confront the monster.  We have convinced ourselves, because it is the easiest thing to do, that there is nothing that we can do. We the people – the population at large and our leaders – are hiding behind a veil of silence. And, that very silence has drowned John Lewis. 

And, there is no other voice, and the silence is deafening.

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If Ever There Was A Time ...

Donald Trump will be president in a matter of days, regardless of what Russia may have on him.  He may be impeached in a matter of days too, but that is less certain. 

But, whatever the days ahead may have in store for us, under any of many scenarios, the news ain’t good.  Not good for the country, not good for its people, not good for the confidence we all share that the sun will come up in the morning and set in the evening, and certainly not good for the markets. Even the most optimistic among us must accept that the political, social and economic pillars we have rested on for centuries have become dangerously unmoored.   Any and all things, positions, and people we have taken for granted are up for grabs.

It doesn’t take a genius to see that we are on our own.  Listening to familiar gurus is of little help – they know no more than we.

So what are our absolutely next steps:

  1. Stay optimistic.  It is hard to believe that the country won’t have wherewithal, the fodder, and the good sense to impeach Trumputin in the early weeks and months.
  2. Retain relationships with all.  This will be over and, as a nation, we will move forward again.
  3. And don’t be a fool and assume that we will get out of this unscathed.

Thus, act in your own interests and take commonsensical steps to protect yourself in this tumultuous period:

  1. put aside an emergency fund
  2. reduce you exposure to markets that will reverse themselves
  3. regardless of how much or little money you have, be prudent and strategic by putting most of it in FDIC and NCUA-insured savings and CDs

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The Case Against Principal Protected Notes

With the stock market at its all time high, brokers at Merrill Lynch, Morgan Stanley and JP Morgan Asset Management are touting an instrument called “principal protected notes.”  These notes come in a variety of different forms, but the structure is usually pretty similar.  You buy a note with a 100 par value tied to an S&P price that is set on the day of pricing.   If the S&P were to be trading at 2500, that would be your S&P price.   At the point of maturity, usually 5 years, you receive a percentage of the increase in the value of the S&P (usually between 50% and 70%) with your total appreciation usually capped around 30%).

These things are actually selling like hot cakes, especially now that the market is at its all-time high.   Brokers will tell you that you are not putting your principal at risk (which is correct so long as the underlying offeror does not default).  The notes, therefore, are very attractive to people who are risk averse and are upset that they have missed a huge run in the stock market.

Even if fear of missing out (FOMO) is your issue, this is not the right instrument for you.

Proper investing and proper financial planning involves having a portfolio of equity, debt securities, cash and other instruments (such as real estate, gold or other commodities).  

If you purchase one of these instruments, you are buying something other than equity.  Rather, you are buying an instrument that does not let you fully participate of the market, instead only giving you fractional participation, and that does not provide you with the dividend income on the S&P 500, currently about 2.2% annually.  That 2.2% dividend yield, when compounded, is roughly 11.5% over a five-year period.  Foregoing that yield is your "cost" of hedging the offeror's downside exposure in the instrument, but it is also cash out of your pocket if you have a long-term intention to stay invested in the market.

Likewise, the idea that your purchase of principal protected notes is just as good as cash if the market is lower in 5 years is also erroneous.  Your cash – if left in cash - will compound over the 5-year period no matter where interest rates go.  But, with interest rates poised to rise in 2017, 2018 and beyond, your cash could potentially compound at quite a high rate.  Even if you were to lock into a 5-year CD today (the best rates are currently just over the 2.2% S&P dividend yield), you are certain to see a compounded return over the life of the CD of just over 11.5%.

You need cash and you need equities.  A principal protected note is neither.

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