While my weekly posts are generally geared toward financial planning and investment topics, on occasion I'll veer off course and offer business updates. This is one of those weeks.
As I continue to build this business to serve you and your long-term goals it's important to keep up with the evolving technological landscape. Along these lines, here are a couple of updates designed to make your life just a little easier.
A common topic lately has been the problems with emerging markets and why the asset class is down so much this year. It's important for investors to examine these problems because the asset class is expected to generate excess returns over time but is underperforming now. We know we're supposed to "buy low and sell high", but in practice it's a very hard thing to do, especially when it comes to more complicated parts of the global stock markets.
Of the many destabilizing forces in the world today, blockchain may be one of the most misunderstood. We've all heard how this mysterious process is what powers bitcoin and other cryptocurrencies. Some of us may even have heard how major companies, including asset managers and brokerage firms like Vanguard and TD Ameritrade, are experimenting with the technology. But what is it? How does it work and what is it good for?
You've likely heard on the news and elsewhere that this month is recognized as the ten year anniversary of the stock market collapse and the start of the Great Recession. While anniversaries normally entail celebrations to remember happy times, this one has tended to give me the chills. It was, after all, ten years ago this past week when Lehman Brothers was allowed to fail and the global economy felt like it was unravelling faster every day.
When rates on CDs are higher than bonds, why invest in bonds at all? If most bond prices are negative so far this year, why not sell them and just deposit the money at the bank where we can earn a couple percent? Anything positive is better than something negative, right?
These are good questions and it's important to explore the answers since some (or many) of you have probably asked yourselves similar questions lately. The issue is that, so far this year, bond investments are mostly negative while yields on cash investments like CDs have turned up in recent months and seem more appealing.
Year-to-date, the total return (including dividends) of core bond index funds like Vanguard's Total Bond Market and iShares Core Aggregate Bond Index are down around 1% - 1.2% while 1yr CDs, for example, currently offer almost 2.5%.
It's entirely reasonable to consider dumping underperforming bonds in favor of nice, safe, comfortable CDs at the bank. The problem is that it's the wrong thing to do. Or, at least it's the wrong thing to do with your long-term savings.
A common question lately has been about what to do with cash at the bank. Interest rates have been rising and have finally started lifting yields on certificates of deposit (CDs). But are rates good now or should you wait for them to go up? What about online banks, are they a good option? And how much money should you have in CDs anyway?