Mortgages: “you can just buy the 5% treasuries and now your mortgage is paid without doing anything.”
Not following this.. is bull saying that you should buy treasuries that mature at the same time as your mortgage loan term AND in the same amount as the current outstanding mortgage amount, therefore giving you the 2% spread over the rest of the loan?
Multi-year guaranteed annuities (MYGAs) exploded in growth in 2022 given the high interest rate environment. Roughly $112B in sales. They behave similar to CDs.
A client deposits an initial premium, earns a guaranteed interest rate for the product duration (typically 2-10 years) and the initial premium and interest earned is tax-deferred. Most of these products also allow up to 10% of the account value to be withdrawn annually without penalty. To give you an idea of the rates they're earning...
3-Year: 5.50%
5-Year: 5.75%
7-Year: 5.65%
They're offered by highly regulated and well capitalized insurance companies. Better yet, spend a couple days and get a life insurance license, sell it to yourself, and collect a commission (2-3% of the initial premium). Could be another option for those considering a safe place to park cash for a few years and earn a competitive rate.
Can someone help me understand why you'd buy a bond that locks you in for YEARS at ~5% when you can leave your funds in a high interest savings account that earns ~4.5%?
People in the comments are getting hung up on “never pay off your mortgage”. Bull is saying it’s stupid to pay off a loan with a lump sum or extra principal payments (re Dave Ramsay) when treasuries are higher than your loan rate.
Technically speaking, by making your regular payment you are “paying off your mortgage”.
I actually prepared for this kinda way when i sold my house and bought a new 1. I locked my rates @1.59%. The money i made on the first house is 500k. I did kinda a deal instead of leveraged up. I was lucky with timing the newly build 1. The new 1 is already worth way more. But i have a slightly higher morgage. And payed some of from the money i made from the first house. My plan was if intrest rates get high enough i am gonna put that money in a savings account so it pays of the morgage. But now i have to find a way with bonds it sounds even better. Problem is Europe so a little bit more difficult. Also i think Europe always lags on Usa so the rate cycle in Europe when usa stops might take another 6 months.
Bull - I like the point you made (somewhere) that when rates approach the long term return on stocks, that is not good. It got me thinking..
I've got some cash flow positive rental properties which have floating rate debt on them. It's WSJ Prime Rate + 0.75%, which comes out to about 8.5% right now. That's basically the long term rate of return of stocks. Is the move here to just pay off its debt instead of doing any investments? In the short term, it would be a risk free 8.5% and sounds like a good move.
On the other hand, its a 20 year mortgage. Rates will surely go back down within the next 20 years. So, am I shooting myself in the foot by paying it off too quickly? Would love to hear everyone's thoughts.
If you hold the bond to maturity, you get your principal back even if the interest moves against you during that time? In other words, you can only have a capital loss if you sell before maturity?
For non US people, I believe there's a 30(?)% withholding on interest income if no dual tax treaty In place. However if held by Irish domiciled ETF, dual tax treaty lowers withholding to 15% on interest paid to Ireland. Ireland doesn't impose further withholding.
In this case, given what @bowtiedeffer mentioned about ETFs, does a short term 0-1 year maturity ETF( like VDST) make sense? Reduction in withholding and maturity suggests basically HTM and buying new 1 year to replace. YTM is about 4.5 ish which is roughly 5.1% minus foreign withholding.
Wouldn’t the smartest decision be 6 month treasuries sometime during April be the smartest for highest ROI? And how long do you think we’re going to be above 5% interest rates because if it’s going to be 3-5 years than 6 month yield is approx 10% a year in this economy is great in large sum of money
Mortgages: “you can just buy the 5% treasuries and now your mortgage is paid without doing anything.”
Not following this.. is bull saying that you should buy treasuries that mature at the same time as your mortgage loan term AND in the same amount as the current outstanding mortgage amount, therefore giving you the 2% spread over the rest of the loan?
Multi-year guaranteed annuities (MYGAs) exploded in growth in 2022 given the high interest rate environment. Roughly $112B in sales. They behave similar to CDs.
A client deposits an initial premium, earns a guaranteed interest rate for the product duration (typically 2-10 years) and the initial premium and interest earned is tax-deferred. Most of these products also allow up to 10% of the account value to be withdrawn annually without penalty. To give you an idea of the rates they're earning...
3-Year: 5.50%
5-Year: 5.75%
7-Year: 5.65%
They're offered by highly regulated and well capitalized insurance companies. Better yet, spend a couple days and get a life insurance license, sell it to yourself, and collect a commission (2-3% of the initial premium). Could be another option for those considering a safe place to park cash for a few years and earn a competitive rate.
Can someone help me understand why you'd buy a bond that locks you in for YEARS at ~5% when you can leave your funds in a high interest savings account that earns ~4.5%?
People in the comments are getting hung up on “never pay off your mortgage”. Bull is saying it’s stupid to pay off a loan with a lump sum or extra principal payments (re Dave Ramsay) when treasuries are higher than your loan rate.
Technically speaking, by making your regular payment you are “paying off your mortgage”.
I actually prepared for this kinda way when i sold my house and bought a new 1. I locked my rates @1.59%. The money i made on the first house is 500k. I did kinda a deal instead of leveraged up. I was lucky with timing the newly build 1. The new 1 is already worth way more. But i have a slightly higher morgage. And payed some of from the money i made from the first house. My plan was if intrest rates get high enough i am gonna put that money in a savings account so it pays of the morgage. But now i have to find a way with bonds it sounds even better. Problem is Europe so a little bit more difficult. Also i think Europe always lags on Usa so the rate cycle in Europe when usa stops might take another 6 months.
Would love to see an Instagram for newbies post.
Would you consider crypto stablecoin yield above 5% and viable alternative to bonds (for instance VELA finance, or some pools on curve)? or too risky?
Thank you for this, I've read the latest paid post and I didn't understend anything
Bull - I like the point you made (somewhere) that when rates approach the long term return on stocks, that is not good. It got me thinking..
I've got some cash flow positive rental properties which have floating rate debt on them. It's WSJ Prime Rate + 0.75%, which comes out to about 8.5% right now. That's basically the long term rate of return of stocks. Is the move here to just pay off its debt instead of doing any investments? In the short term, it would be a risk free 8.5% and sounds like a good move.
On the other hand, its a 20 year mortgage. Rates will surely go back down within the next 20 years. So, am I shooting myself in the foot by paying it off too quickly? Would love to hear everyone's thoughts.
How do you practically buy a treasury bond vs a treasury bond etf? Do you have any resources to help guide with this?
Great 101. I’m curious how this fits in your overall framework. Would be cool to see your monthly portfolio new bond allocation (in level 2+ post).
If you hold the bond to maturity, you get your principal back even if the interest moves against you during that time? In other words, you can only have a capital loss if you sell before maturity?
For non US people, I believe there's a 30(?)% withholding on interest income if no dual tax treaty In place. However if held by Irish domiciled ETF, dual tax treaty lowers withholding to 15% on interest paid to Ireland. Ireland doesn't impose further withholding.
In this case, given what @bowtiedeffer mentioned about ETFs, does a short term 0-1 year maturity ETF( like VDST) make sense? Reduction in withholding and maturity suggests basically HTM and buying new 1 year to replace. YTM is about 4.5 ish which is roughly 5.1% minus foreign withholding.
Gracias.
👏🏼👏🏼👏🏼
Wouldn’t the smartest decision be 6 month treasuries sometime during April be the smartest for highest ROI? And how long do you think we’re going to be above 5% interest rates because if it’s going to be 3-5 years than 6 month yield is approx 10% a year in this economy is great in large sum of money