Hacker News Reader

Comment by solotronics | Hacker News Reader

I still don't fully understand negative interest rates. So banks then have a negative penalty for holding cash?

When sums of money are sufficiently large (millions or billions of USD), it sometimes makes sense to secure a very small loss (0.5% per year) than to park it in an account or fund or etc which could have a positive or negative yield (maybe you win maybe you lose).

Also, to the original commenter, I will never put all my cash under the mattress. One break in and it's all gone.

I currently have all my cash parked in a 1% interest checking account with strong protections and fringe perks.

I am content with taking an extremely small loss on inflation while I wait for the market to eventually tank. It's been longer than I expected (2 years already), but I do not ever shed a tear over the what, $16,000 in pretax capital gains I theoretically could have made?

Why not at least buy a 1yr CD? Rates were around 2.5% last I checked.

My money market account pays 2.5% interest. SoFi Money is at 2.25%.

https://www.doctorofcredit.com/high-interest-savings-to-get/

Goldman is offering 2.25 percent on a basic savings account as well.

I have spoken with several people recently who tried to time the market by selling their equities, then lost out on these recent all-time-highs.

I don’t know what the answers are and no one does. In my opinion there has been a global phenomena of easy money in various ways for a decade, and it has filtered out in all sorts ways, from the premium in equities, the absurd rise in housing prices, the art market, basically anything that can eat excess cash has been eating it. A crash and hangover is coming but it will primarily affect richer people though it will bleed out to the non-monied classes via job losses and retirement accounts falling in value.

But when this will happen? It could be next year or in 50 years! The governments of the world have so many options to keep the party going.

Yes I agree with you, it's been a very interesting decade where we went from "the sky is falling" to "let the good times roll"!

However at least for me, my current earning potential in my job is not that high, and my cost of living therefore has been what I've sought to optimize instead of capital gains.

For people who have lots of taxable income, lots of asset exposure, and a high cost of living, then a mixed bag of investments is definitely crucial to preventing those people from going bankrupt.

But for me, as long as I find ways to continue to live healthy, have a good network of friends, a job, money in my main bank accounts in case I need to put up a security deposit or take an extended vacation, then I am very happy. I therefore would never want to keep $40,000 or something in a market account when I really do need all of that money at any time.

while your point about negative interest rates is valid, note that your conservative investment strategy is misguided (as you've already noted in foregone gains). there is no way to time the entire market, going up or down, without vast and extreme insider information.

so the safe strategy is to make sure you have an appropriately balanced portfolio (among cashlike securities, equities, bonds, etc.) and to leave your equity investment in place while riding out the downturn.

If you are riding out the downturn there's little need for diversification. Sure don't keep your portfolio in a single stock but the S&P500 is sufficient diversification. You don't need cash likes or bonds. Equities have the highest rates of return and that's what you should be having.

it really depends on your risk appetite. the conservative investor will want downside protection against rare market collapses that last for decades (e.g., 1929).

investors typically get more conservative as they get older, so your advice might be ok for most 25 year olds, but not for most 65 year olds. the conventional wisdom then is to hold increasing proportions of weakly/negatively correlated securities like bonds in your portfolio as you get older, particularly through downturns.

and the s&p500 is a reasonable basket of equities, but it's not perfectly representative of the asset class either, since it's composed of primarily large cap domestic stocks. it doesn't include any startup equities, for instance.

Supply and demand, and fear. Imagine a customer who needs safety more than a return. They are willing to put down $1 now in exchange for a GUARANTEE they will get 0.99 in 10 years.

It might help to think of it as going beyond zero interest rates to the point of intentionally punishing traditional savings to try to force consumer spending (if you hold onto it, we'll devalue it), entice borrowing (we'll essentially pay you to buy a house [1]), etc. There are various approaches to pushing rates below zero. Japan and the ECB have done a lot of experimenting, the US will probably take some notes from them when it comes time to push US rates below zero persistently.

[1] https://www.wsj.com/articles/the-upside-down-world-of-negati...

But then people move to safe long holds, and out of Fiat.

This is how we revert back to a barter economy, or one that uses gold/Bitcoin/etc... Since the Fiat currency is rapidly inflating.

That would just further press housing prices up, and push people into bitcoin.

Some institutions are bound (legally and/or contractually) to hold (a certain percentage of) their assets in government bonds. So they don't really have a choice. Also, their performance isn't measured in absolute percentage terms, but only as relative to the benchmark - so if the benchmark goes just as negative as the fund, they didn't actually "underperform".

Reply on news.ycombinator.com