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Comment by gottorf | Hacker News Reader

Here's a rule of thumb on scams: know what the risk-free rate is (in the American case, the benchmark would be 10-year U.S. Treasury note rates), and know deep in your heart that any[0] return above that bears risk.

The 10-year note currently yields a fraction above 4%, as of the last auction[1]. That means that anything that has the potential to return above that also has the potential to lose money; and generally, the more potential for higher returns, the more risk. Anybody claiming to give you a "quick, safe return" on your money is lying about at least one of the quick, safe, or return; i.e., a scam.

[0]: Very rarely, there are true arbitrage opportunities or some other situation where someone's cleverness leads to outsized risk-adjusted returns. "You" are probably not that someone.

[1]: https://treasurydirect.gov/instit/annceresult/press/preanre/...

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You can currently get a 5%-interest savings account with some quite reputable firms (Morgan Stanley, Robinhood, Wealthfront). Those are effectively risk-free ways to earn more than 4%.

I think the 10-year treasury note rate underestimates things a bit. Maybe it's because there is an assumption priced in that interest rates will go down again?

But the point stands: right now, anything offering you more than 5% return must have some risk involved.

5.4% from a Goldman Sachs CD promotional rate. That is as risk free as anything else.

> Maybe it's because there is an assumption priced in that interest rates will go down again?

Yes, exactly this. The 1-year treasury pays 5%, so it's appropriate to look at that instead.

Normally the 10-year pays more than the 1-year, so it's safe to look at that; we're currently in an unusual state (an "inverted yield curve") where it doesn't, and people tell you this is a surefire sign of a coming recession.

Yeah and really for most people that risk with those FDIC insured banks is effectively zero so backstopped by the fed anyway.

Off topic, but as a finance nerd I want to point out that if you know you won't touch your money for 10 years and put it in a savings account paying 5% you are bearing "duration" risk. It's possible that interest rates will fall a lot and by failing to lock in a 4% return you end up with less money at the end of 10 years. (Just a technical note! You probably shouldn't buy 10 year treasuries!)

This but S&P 500 for me. I am at a point I won't believe any investment would get me more than a few % over S&P for significant length of time like 5-10 yrs.

I don't know, a 5% CD with FDIC insurance may actually be lower risk, as US debt credit rating has been downgraded to AA+ from AAA recently.

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