Ep: 91: The 5% Interest Solution: How to Make Your Money Work for You
THE X'S & O'S
Are you tired of earning 0% interest on your cash? Do you want to know how to make your money work for you and earn up to 5.00% APY on the cash in your bank account?
In this episode, we discuss the best ways to earn interest on your cash, even if it's earning 0%. We cover everything from high-yield savings accounts to CDs to money market funds. So whether you have a little bit of cash or a lot, we have something for you.
Matthew, Brent, and Joshua discuss:
The debt ceiling drama
Apple's new high-yield savings account
Strategies for cash that are currently paying 5x the national average in annual interest
And more
Resources:
Connect With RPA Wealth Management:
Transcript
Welcome to The Retirement Plan Playbook with Brent Pasqua, Matthew Theal and Joshua Winterswyk from RPA Wealth Management. In this podcast, we cover current events, retirement planning strategies. And provide you with the tools to help you build a successful retirement playbook in any political or financial landscape.
Join Brent, Matthew and Joshua as they navigate the issues that can make the later stages of your retirement plan challenging and help you create the best Retirement Plan Playbook. Now let's get to the show.
I feel like it's been a while since we recorded. Yeah, it's been quite some time. Is there a reason why we haven't recorded for a while? I, I've been outta the pocket for a while. I had a kid, I. You had a kid, huh? Another one. Yeah. Number two. my son was born on April 14th, which also happens to be, I believe, your son's birthday, correct?
Brent? That is correct. Kind of wild how that happened, huh? Yeah. I mean that's pretty rare that that would happen on that same day, cuz that wasn't even his due date, correct? No. Well, thinking about it, and now in hindsight it was really close, it was April 13th. Got it. So he was a day over his due date.
But he actually didn't come on time, so we had to do an induction, but you know, it is what it is. Congratulations, Matt. Thank you. Yeah, we're very excited. He's healthy. my wife's doing good is very, very good labor. no complications and you know, we're all just adjusting family of four now. So we knew, we knew it was gonna be a boy, but you didn't share the name so it was exciting to find out his name that day.
Yeah, so his name's Nolan Carter., let me just tell you guys a brief story cuz you probably wouldn't know this, but we decided to switch his name, driving to the hospital. Wow. Yeah, we just weren't feeling like the. Original name that we had picked out. I'll never say what the original name was. Really?
Really? You won't tell us, I guess. No, no. Nope. But definitely not a podcast format. But yeah, we switched his name on the way to the hospital or we decided like, Hey, we're gonna go this with this name instead. Now, did you g, did you, you have an agreement with you and your wife that you would never release what the other name was?
Cause I'm now wanting to pry and find out what that name was. Can you just tell me, was it Joshua? No, it was not Joshua. No. I mean, you know, maybe one night, you know, years from now, but you know, not now, but, so yeah, it was cool. It was fun. I know people kind of have those stories. Some people are like, oh, you know, we wait until we see the baby.
Then we decide on name A versus B, but we just drive in the hospital. We're like, let's just switch. Let's go with this name instead. Ooh. And how long were you sold on the, the other name or were you really filling the other name? We were never really filling the other name. Got it. I had asked you like a, even like a month before she was due and you were kind of like, ah, we don't know for sure.
So, yeah. So are you sleeping much? I am, but you know, he doesn't really want much to do with me. That's like the common myth was like a man, right? Like, you know, unless, unless you're doing like formula or anything like the, The kid wants the The female. Yeah. Are you are looking a little more tired though since you've had a kid?
Do you? Do you agree, Josh? Yes. You just never know what you're walking into when you get home. No you don't. No. With the newborn and the two year old, two and a half year old. Yeah. You just don't know what's gonna happen. I'm glad you're doing this cuz I'm gonna get like a lot of like insight to the two child thing that's going on at your house right now.
Because right now with having one, I'm like, all right, it's not going pretty good. But I was like, when I kind of imagine having two. I'm like, wow, how is this gonna work? How do I figure this out? Well, Brent's like eight years ahead of us, so he knows everything. He's, he's getting into like the easier phase.
Now. Your kids probably take care of themself. I'm seven years ahead. I remember all how much. You guys gave me a hard time when I had two and I was, looked like a ball of stress and exhaustion. I never gave you a hard time. What, but now you're going through it and you see, you know, it is not an easy.
Stage of life, but you know, it does get easier and it, it is the most joyful stage of life. So I agree. It's so rewarding. It's very rewarding. It's fun. You'll, and it goes so fast. Like I've month's already passed, you know, with ours, so Congrats, Matt. All right, let's start Congrat. So welcoming to the Retirement Plan Playbook.
I'm Brent Pasqua. I'm the founder of RPA Wealth Management. I'm here with Matthew Theal. This is a certified financial planner and an advisor at the firm, and then also Joshua Winterswyk, who's a finance certified financial planner, and also an advisor at the firm in. Today we have some headlines I think that are really important to what's actually going on right now in the news, and that's the debt ceiling.
I think it's kind of hard for most to understand exactly what's sort of taking place, because even on you watch cnbc, the explanations of kind of what's taking place right now is not even clear. I think there's a lot of ambiguity in this situation, but I know it is a, a risky situation to the stability of our country.
So, Maybe touch on a little bit about what's actually happening here. Yeah, so I think it's really important before we even start talking about that is just a date. Today's podcast that we're recording, on May 23rd. So you know, this show will probably come out in four to five days from now.
There's a chance things have changed with the debt ceiling, but essentially let's just kind of summarize what's been going on. January of this year, the US hit the, the debt ceiling limit. And what is a debt ceiling limit? It's just arbitrary. It's a number that is made up and then it's agreed to upon and they say the debt can't reach this level.
You know, technically it can, it can't get over. And you know, Josh, I think you had a really interesting, number before the show. How many times have they actually raised the debt ceiling limit over 80? It was a lot higher than I thought. Wow. So it sounds like something that probably should just begin, right?
Like they should just get rid of, right? Like why is it even here? Right, because it, it's really meaningless. it's just an arbitrage number like you said, and it's just like, so both sides, Republicans and Democrats get to do their fake little posture for the people who vote Republican or the people who vote Democrat and act like they're gonna make a difference in cut spending, but we all know they're really not.
And the current debt selling is 31.4 trillion. I wanted to say that number. Wow. Because I think what, what the real concern is, is if they don't raise the debt ceiling, then they basically are in default, right? And then they have to then prioritize how they pay back all the debts. And then you're basically have a whole country that's in, in debt, but we're already in debt.
And you have to like start paying people back, but you can't pay people back. So I think the, the weird thing, so I was reading about this, is there's like a technical default and there's like a true default or, and, and so like on the technical default, I think what would end up happening is they would pay all short term expenses, but like nothing long term until they raised the debt limit.
Then they would just be able to pay all the long term stuff. It's like really weird and really strange and. You know, I remember going through this in 2011. I know they've raised it pretty, pretty significantly. I'm not sure how many times, but I feel like we, they do this every few years. Mm-hmm. I don't know, guys, I tell you, I'm just getting sick of this stuff.
It, it's really just a like a political tool. Yeah. That's all it is. I, I mean, both sides use the debt ceiling as a negotiation tool for whatever they want to accomplish. I guess the question I ultimately have though, is that at a period of time when interest rates are so high, And people are putting more money in US Treasury bonds, isn't it?
Somewhat. I mean, there's certain to be, seems to be a conflict right now. There's money pouring into treasury bonds, however, you know those can potentially be in default. Yeah. I mean technically they, they could, but again, it's probably why it's not gonna happen. And if it does, it just might be like a temporary one or two day things.
Everyone's gonna get paid. Right. It's the US government, the money's there. It's just, you know, really Politics getting in the way again. Yes. From pro progress in this country. Yeah. I, I, I think it's not something that I have any sleepless nights over. I'm very concerned about. I think it's just a talking point on CNBC and.
You know, the CEOs are talking about it and they basically say, go get the job done, guys. Like, let's move on from this. Yes. Yeah, yeah, absolutely. Are we gonna move on from this? Yep. Okay. I'm already over the debt ceiling. I was over it before we even started. Me too. No, I don't, I I don't really like talking about it.
I'll just say, you know, one thing, if it does get down to the wire at, you know, expect financial market volatility. And they, and they, both parties, both want the debt ceiling to be raised. Yes. It's just about who, what else do they get right by voting for this link to be raised? So to understand that they both do.
Right. All right. Let's move on. Tell us a little bit about the Apple Savings account. Yes. This is a, a pretty cool one. Apple launched a savings account, and correct me if I'm wrong, but this is in partnership with Marcus, right? Josh by Goldman Sachs? That's correct. And the, the rates 4.15%? That's correct.
How does it work? Like, can anybody do it? Who ha gets an Apple card or like, is it through your phone or do you go to like an Apple bank? I, I think there's a lot of confusion and, and I saw some even posts on social media, people being like, Hey, like I don't trust this. I don't trust Apple with my money.
I don't know if trust, I mean, apple's pretty good at managing cash. They have a ton of it and they manage it pretty appropriately. I do believe though, you have to have their card. So their credit card, yeah, you have to have their card to have access to the savings account. It's managed by a financial inst partnered with the financial institution Marcus by Goldman Sachs.
So it's back. By them and they're helping implement these savings accounts. And then you can also, you know, access this money, transfer it and do all of those normal things from like a normal high yield savings account from your Apple account. My first take about this though is that like this product is making it easier to have access to.
Like high quality financial instruments, like, you know, ev I think what almost 50% of Americans have iPhones now. So like if you do have an Apple card and now you have access to this high yield savings, it makes it very convenient, very easy, you can get higher interest. So my first take is, is like, this is pretty cool and, and, and really convenience to a lot of Americans to get away from traditional banks that don't.
Aren't giving out a lot of yield for their cash deposits and use something that's very simple and higher earning. If the account was yielding, you know, 1% or less, would it still be cool? No. No, it wouldn't be cool. Well, I again, ACC access Easy Access convenience, because it's essentially just a Marcus savings account with the Apple logo on it, right?
Because Marcus is the bank behind it. Apple's not an actual, the actual bank. Apple's not a bank. That's correct. And it's Marcus and is the same rate as Marcus. And Marcus is who helps them with the credit card, correct? Yes. Yeah. So do you guys have an Apple credit card? No, I don't. No, don't. But I, and do you even know the numbers around how many people have it?
Cause I can't imagine too many boomers of that generation of the boomer generation are actually signing up for Apple credit cards, right? No, I think it's probably like a Gen Z millennial thing. So I guess, you know, if. I, I wonder how much money is actually pouring into these Apple savings accounts. I mean, I could see there's a, a market for it.
I get that. I know that originally they did have a really big inflow to start. I don't know now though, how it, like it, you know, maybe the hype. And the Lord kind of faded, but originally they did acquire a lot of deposit, so I just looked it up and as of as of 2022, there's an estimated 6.7 million Apple card holders in the us.
Yeah. So that's, that's still a good number. Yeah. I mean, that's a lot of people still using a credit card, but. I mean, I, I could see it getting bigger as time goes by. Yeah, no, I agree. And, and you know, I don't wanna say like this younger generation isn't very good at investing, but you know, they kind of prove by top, taking the marketing, getting all in the crypto, don't wanna mention names, but NFTs, NFTs and stuff that, you know, they weren't great at investing and.
This is probably pretty good for their savings. Four, 4.15%. It's a good interest rate for this economy. And it's probably better than putting your money in Bitcoin or Ethereum at this point. Well, and I think what makes some sometimes finances better is just the simplicity of it. Mm-hmm. And if you have your credit card in one place, you have your savings account, one place you're buying your Apple products, that you may be financing.
Through the same or something similar, like you can, you can imagine that it makes just everything a little bit easier cuz everything's kind of consolidated. Yeah. And, and how many banks take advantage of like the consumer and their deposit accounts? You know, like, let's just talk about Citibank, Wells Fargo, chase, bank of America and they're yielding less than 1%.
And you know, You keep your money, there're not earning anything and Apple's gonna very easily implement this for you without like any changes, like you said. And now I'm getting four times the interest I was getting at these big banks that have been taking, you know, advantage of me for so long by not giving me any sort of yield.
So I like it. So I just did a quick search and I guess Forbes was reporting that during the first week Apple took in a billion dollars in deposits on their savings account. And it came out to about an average balance of, of $4,000. Yeah, that makes sense. So a lot of money, but very small accounts.
Yep. That would make sense with my thoughts on it. You know, I guess where I would also have some trust in just what Apple is doing is based on how Apple pay works. I mean, how many times have you forgot your wallet somewhere I've heard, you know, us say, oh, did you bring your wallet? Oh, I got Apple Pay and the store accepts Apple Pay.
And you don't ne even need your wallet at that point. No, you don't. And you could even use your watch to do that. I think also their cash product like Zelle, ands, and Venmo. Have you guys used that to choose your money? I haven't, but I would like to get away from Venmo so I wouldn't be open to exploring it.
The Apple Cash works really good. Really simple. I like it. Yeah, I mean they're making things easier, which is pretty cool. Apple makes great products, like, let's not beat around the bush. This is cool, cool partnership. Great for young people. They don't really see a ton of retirees taking advantage of this.
Especially when there's, you know, Marcus, American Express Ally Josh, we're looking at Capital One the other day. They have a, you know, pretty good savings account right now. There's lots of options. I mean, I don't need another credit card, but I'm actually kind of this conversation's talking me into kind of wanting one.
Me too. If I was probably to add one just to like see how it goes. Cuz we talk about it and we read about it so much. It would good be good to just kind of experience their financial ecosystem. I heard the Apple credit card's cool, like spending reports and stuff you get with it on the phone. But Breen, I think you're an Amex guy.
Do you have an Amex? No. I would imagine the, your next card's an amex. I mean I've been grandfathered into my credit card, but I, I would be willing to see where technology is advancing in Apple and what they're doing. So I'd probably be my next, if I was going to try something, but I'm, I'm not really in the business I wanting to try anything else right now.
So if anyone's the test on me, then we gotta give a update. Yeah, yeah. Or people can let us know how they like it. All right. Let's get into the retirement planning corner. I mean, kind of really talking about a lot of the same things. Let's talk a little bit about cash investments and with interest rates where they are.
Like what are some of the good places to be looking? If you have money sitting in savings or checking or you know, you have your emergency fund on. Where and how to be positioning that money. So I think before we kind of jump into how to invest, how to invest your money or where to park your cash, let's maybe tell the listeners why rates are high in the first place.
Cuz I think that pays the whole story. So, interest rates are high because inflation is high. So the Federal Reserve has been massively raising interest rates since 2022. If you're a new listener we've talked about this on many shows over the past year. And where rates are right now puts what they call the cost of capital, which is kind of your trade off rate in investing at 5%.
So that means that you should probably be getting somewhere around 5% on your money or the investment you're making doesn't make sense. Let me give you an example of an investment everybody wants to make that does not make sense in today's economy. It's called a rental property. Very few rental properties with the price of real, of real estate make sense in this economy.
Why, because they're not making that 5% rate of return that you could get just by parking your money and cashing a t bell. So why is the Federal Reserve doing this? They're trying to suck money out of the economy and get people to stop spending, so inflation goes down. That's why rates are higher.
And so, I guess, and the, the next question is, is. Since rates are higher, do you think most people are taking advantage of higher rates or did people need to learn how and where to get the higher rates at? So just for meeting, like with our clients and draw you jump in and tell me if I'm wrong, but I think everyone is just so used to low interest rate environment.
Like nobody's like thinking I. Like, Hey, there's been like a, a tremendous sea change, right? Cause we went through the 2010s and interest rates were zero, inflation was under 2%. Now inflation is running at, you know, 5% year over year, and interest rates are 5%. Like people just aren't used to it. I have a lot of con conversations with clients where, and I had a discussion when actually with somebody yesterday that was talking about how they just have money parked in a brick and mortar bank savings account that's not earning any interest and what sort of throws me off sometimes of just trying to understand where people are at with that.
Is that these savings accounts are regularly available at, you know, any ins, a lot of institutions where you can get a much higher interest rate. A lot of 'em are institutions. They may even have a credit card with. Right, that they can be getting these higher savings accounts, but they've just continue to stick it for the last eight, nine months to 12 months.
They've spent in those same savings accounts, not earning anything, and I'm sure they're even receiving marketing from their other institutions that they work in. Like, here's a, a bonus to move in, even for a short term CD or a new savings account and talking about brick and mortar. It doesn't have to be in online savings.
I know we talk about online savings accounts, but if you walk down, you know, even here in Claremont, down the street, there's also some credit unions that have a. 4% interest rate, aaa. That you don't have to necessarily, if you don't like online savings or don't have the tools to implement that shop around a little bit.
It's worth it, especially if you have a good amount of cash they're sitting there. Yeah, so I think Capital One, I don't know if they have any offices in California, but I believe they do have some brick and mortar locations in there at 3.75%. Which is pretty good. And Capital One is a, you know, top 10 financial institution in the world.
In the us. It's a big company and it was announced a week and a half ago that Warren Buffett's been, you know, buying billions of dollars of their stock because it's gone down so much with this banking crisis. So, I mean, you could park your money there if you want to, and you almost, you know, have to.
Right. I mean, with interest rates, like you just explained, them going up and the Fed continuing to raise them over the last, you know, 15 months that. You're not keeping up with inflation. Inflation's been here. It's sticking around. So if you're not earning interest on that cash, you are effectively losing money.
So you have motivation to go out and find better cash management products. If I think about the conversations that I've had with people, I think there's probably a couple reasons why they probably don't want to move it. Maybe it's trust, right? They want to be able to be able to walk into the bank and access their money.
Touch their money, take it out right then and there. I. And then there's also sort of the accessibility of how you get it liquid, if it is somewhere else, if it is on an online bank, if it, if it isn't at that brick and mortar bank. I don't think that at this point that there's any reason why somebody shouldn't have an online savings account or a different type of savings account where that would be a concern that they can't get that money quickly.
Cuz I, I think back in the day, You know, if you had one money at one bank and another money at the other bank, you would have to write yourself a check or you would have to do some form of transferring that wasn't online, or it was a lot more complicated. But now these banks are all intertwined where you can transfer directly next day.
So there isn't that lag from your phone. From your phone. You could be at lunch transferring money. Yeah, you could. Technically, if you think about it at 9:00 PM you could do it at 9:00 PM and then your transactional process the next morning. You don't have to wait to talk to a teller or anything. And most banks.
Don't keep enough cash for you to be able to walk into the bank and pull out all of your cash anyway. Like, it's not like a, you know, if you're looking for that physical, like I don't need to go down there and pull out my $50,000 in my savings account. Like if you walked into Chase Bank next to it, they're probably gonna be like, you have to order it, you know, and it's gonna take three days.
And I think this goes back to one of the ways, and we can get on what the options are, but I think this just goes back to some of the academic problems that society faces where we're just not educating. Our youth on how to actually put these tools in place for themselves, or even spend time with your money.
Spend time on it because, yeah, your money's in a savings account, but if you had it in this other savings account, you're earning free interest. You're earning free money on it. Sure. It takes, it's worth the steps that it takes to spend an hour on it, because chances are, if you put those good fundamentals in place, You're gonna stick with them and keep 'em that way.
Absolutely. Great point. I think the flip side though too, it's important for people to understand is borrowing costs. So borrowing costs have risen a lot as well. So we now have mortgage rates past six and a half percent, and so this creates an interesting dynamic. I was working with a client the other day and we're talking about paying off their mortgage and they ended up taking out a mortgage just recently.
So they have a higher rate. I think they're at like five and 5 75, or almost like approaching six. And we were running the numbers and it, you know, made sense for this client to pay extra payment towards the mortgage. Absolutely. Because like we just can't get that rate anywhere. Like if we stick the cash they have in their account in bonds, well we're gonna be losing money on interest.
Yeah. Net. Yeah. You can think of it like when you're putting money, your money towards the principle. Right. And it's at five and a half percent. That's the interest rate that you're receiving on the money, cuz you're no longer paying 5% on that cash. Exactly. But you know, if I was talking with his client in 20 14, 20 15, 20 16, and they had like a 3% mortgage.
And they had a bunch of cash, like should I pay it down? I'd be like, I don't know. We probably would make more investing it. Yeah. Invest in the stock market. But now, you know, at approaching 6%, you really can't look a client in the eye and tell them they're gonna get much more than that. The landscape changed pretty quickly though.
Did like, like the Fed raised interest rates really quickly, so. You know, now we're, I know we've been talking about it on this podcast for, you know, over a year, but some people haven't even felt those effects. If you haven't went out and bought like a car or looked for any financing, if you haven't bought a new mortgage and you're locked in at 3%, you might not see that change if you're not actively in the market for financing.
How quickly interest rates have risen yet? Yeah. You know, you're mad about your Trader Joe's bill. Wait till you go lease a car from, or buy a car from Toyota or Kia. We talked about this. You're gonna see that rig going wrong. No more. Cause everyone has the, like the mindset, like Toyota is just always giving out 0% interest loans.
Like that's gone. That's no more. So with interest rates being higher right now, if somebody comes to you, if you're sitting with a client and they have money sitting in the savings account, But they want to keep that money liquid. Like what are the main few options that they have or are you recommending?
They have few. They have a couple different options. I'll just run through a couple of 'em. Obviously high yield savings, we've talked enough about that. But there's also CDs, right? CDs will get sold by banks financial institutions. They could buy something like that. The reason I don't like CDs personally is I don't like how there's a time commitment on it, right?
So it's usually like, oh, we'll give you 5.05%, lock your money up for 12 months. It's like, well, what if I need my money in seven months and then there's most likely a penalty. You have to go through a whole process it. It's really not for me. But that is something that a lot of people like and I could understand why they want the higher rate and they don't feel like they're gonna use the money Exactly.
But if, if those are the same people that are concerned about their money being liquid or in a savings account at a brick and mortar bank, I don't think that, that that's the right type of a CD's. Probably not right for them. No. No. Cause yeah, now, now you're not gonna want to even take the money out cuz you are gonna pay a interest penalty for going out and withdrawing in.
Like Matt said, there's a process to that too. So you're losing that flexibility and that liquidity, and that might not be for you, but I will say like CDs, like right now, that rates are higher, really, really bad a year ago, right? When rates were low, like no one should ever have bought a cd. But now, I mean, they do have some pretty attractive rates.
If you didn't need the money at your bank and you're sure of that, I, you know, I'm not totally against them. You know, cuz you can't get a little bit higher than a money market. Marcus right now has a no penalty cd and we're not affiliated with Marcus. We just really like their products for the listeners to know, and they're at 4.25, which is a just, you know, 10 basis points higher than their savings account.
Yeah. So at that point, unless it's a substantial amount of money, you're just putting the money in the liquid savings account. Yes, exactly. Yeah. Same thing. But I mean, they also do have, and I've seen it across the banks, they have these promo CDs where you get a, a, you know, over 5% CD right now. But you gotta lock your money up.
You know, you probably lose 90 days interest if you break the cd. So there are some penalties if you do break it early, but I think if you're kind of tearing these together, it's liquid money's an online savings account. If you have some money that's a little bit more earmarked for, you know, next nine to 12 months, you could consider a CD for a, a slightly higher amount.
In my opinion, though, the rate isn't that much higher. It's more dollars, a few more dollars you may be making, but it's not probably worth the iliquidity that it provides. Yeah, there's, there's, you know, opportunity costs, you're sacrificing that liquidity for something that's maybe not life changing or gonna make that big of a difference.
Yeah, I agree. What about two bills, Brent? Like how, how can people use those or treasury bills? So, I don't know that the average person would probably want. To be starting to buy on their own treasury bills don't. I don't. I mean, it's more of a complicated trade. You gotta go in there, you gotta find what TBI you're want wanting to buy.
You gotta find the terms, you gotta plug in them out. You gotta execute the trade. You gotta make sure trade's right. So I don't know that that's for everybody. Now there's a lot of people out there who do place regular trades, and they would say that's perfectly easy for them cuz they know how to do it.
But I don't think the average person is gonna go online to their brokerage account and start placing trades. No re retail platforms aren't like, User-friendly when it comes to buying t-bills. Like you ever looked at like a retail, like brokerage account platform. Like it's not easy to go in there and find a T bell like for us, like no problem.
Right? But for retail client, I agree. Like you, you make a wrong mistake and now you know it's not worth it anymore that you even bought the T bell. So t-bills are just bond short term bonds issued by the US government. The reason why we're talking about why we like 'em right, is cuz they pay the best interest rate.
You're going directly to the government. The best interest rate for the amount of safety, I should say. You get higher rates, but you're, it's gonna be very risky as far as trading them. Funny story about my dad. So he's been managing his own account for years. He's a classic two yourself investor.
He actually taught me how to invest. And he, it took him, I think over a month of researching it, talking with me, sending me printouts on his T-bills to actually be able to figure out how to actually buy a TBI from his broker, TD Ameritrade. Oh, really? Yeah. Yeah. So it does, it is very complex to go back to what you guys were saying and I think it's probably too complex for the average person, but yeah, through an advisor, very easy to do.
And you know, if you're listening to this and you don't have an advisor or your advisor's not doing this for you right now, you know, ask 'em why and get in the TBI game. But it's also though you ha you have to stay on top of it, right? It's time consuming because you're gonna have to know when your TBI expires.
When the TBI expires, you're probably, they're going to want to place another trade and buy another one. Or you're gonna wanna move that money somewhere else where it's earning higher interest. Right. Because when your TBI expires, it's gonna go to probably the brokerage account's money market account, and that account's not gonna earn very much interest.
So how many days does it take you from the time that the, that the TBI matures to the time you actually get that money back invested? Is it worth the difference of just having that into an online savings account where you've been earning the interest throughout that whole time? You know, I think that there's some question marks there.
Cause most people aren't gonna necessarily have it on their calendar. Hey, my tbu matures on this day. Right? What I hear you say is it's a chore that also has to have a philosophy because what are you gonna do next? Like, we haven't even gotten into the discussion about like, where do interest rates go next?
Like, I know would, they've been rising over the LA you know, over a year, but what happens if they fall? Like, what's your next move? And if you don't have a strategy around that, again, there could be some negative consequences to that strategy. Yeah. And then the final note on, on two bills cause one pushback I get from clients is are, I was like, oh, it's gonna be taxable.
Like I don't wanna pay tax on on it. I'm like, well, okay, that just means you made money if you're paying taxes. But number two is the tax is exempt from state. Correct. Income tax. So that's nice. Yes. And it's a very good reason to be working with an advisor who's going to stay on top of the trades, who's gonna keep that money invested, where you're gonna have a potentially a much higher.
Potentially much higher net rate of return because it's actually being done correctly and it's getting reinvested, right? Why, why would you purchase t bills over bonds right now? Because the old curve is inverted, so it's just a definitional thing, right? Because bonds are gonna be longer term and they pay less of it, right?
T bills, T-bills are shorter term. They paid higher berate, so In borrowing costs are higher, the shorter your duration is right now because the Feds raise rate so much. And how long will that last for? Is there an unknown to that? That's unknown. Typically the economy breaks when it's like this, but so far the economy hasn't broke.
So I don't know. Your is as good as mine because it's been like this for a while. Yeah, over a year. Yeah. Yeah. We, we think that rates potentially still. Could it go higher? Yeah, I think so. I think the public, public does, the markets do. One thing that nobody's actually talking about right now is what if the long end of the, of the yield curve, so bonds dated further out, you know, five years out starts to rise and you know, more, more or less normalizes and we're in a new normal now.
Could that hurt the banks? Potentially, but I think the environment right now, the banks already kind of hurt. Yeah. You know, going back to one last thing with the T-bills too, I think this is something maybe that Apple needs to take on. There's a, there's a market here for them. Yeah. Facilitating trades on T-bills.
One of the startups did it. I think it's like public or I saw them advertising it that they'll, you know, buy and sell t-bills on your behalf. It's like a T bill account, they call it. There's a, there's a podcast I think that they plug their platform to buy and sell t-bills. Well, hold on. So Josh, let's talk about, I know you've done research on money market mutual funds.
I, I think that's an important one for listeners to learn about. Yeah. So money market mutual funds, you know, banks use money market funds as a cash deposit accounts, but they're act actually mutual funds and now even exchange traded funds that you can purchase. And they're called money market funds.
So it's a basically a cash management strategy for that particular fund. And these funds can. Buy everything from treasury bills to treasury bills, repurchase also, you know, longer dated bonds and incorporate them into some sort of cash management. So instead of buying treasury bills and bonds on your own, you can buy a fund that's essentially doing it for you.
These have become a lot. More popular. The flows into these funds is pretty amazing. Like so many investors are flooding to these money market funds cuz they've yielded nothing for so long. I think it was like 160 billion or something like that. Yeah, it's, it's insane. So, you know, that's why you're seeing it in the news is cuz people are buying these funds to basically have another cash management tool and receive higher interest.
Buyer beware though, some of these instruments, You know, can not just hold treasury bills. They can hold a lot of different instruments in them providing some sort of either liquidity risk fees. So again, do your due diligence when you're looking into these money market funds that are being advertised and sold and that are in the news.
But there are some out there that are only buying treasury bills that are really good financial instrument to hold cash, especially even if it's in an IRA or retirement account or even in a brokerage account. So since 2008, Up until, you know, this year or maybe even early last year, nobody wanted money market mutual funds because in 2008, the Reserve Primary fund broke the buck, right?
Mm-hmm. It traded below its net asset value because of the Lehman Brothers disaster. And so they were like considered toxic assets to our industry. Like if you saw like an advisor, like, you know, money market, funny, oh, that advisor doesn't know what they're doing, right? Like these. Money market funds. It's too dangerous.
Just keep your money in cash. Yeah. So it's just crazy to see it come full circle. What is that like? 14 years later and finally like people are using money market funds again. It's good, it's good interest, right? It is, it is just, you know, it's unfortunately though not all money market funds are like created equal, right?
So you do have to do your research cuz I mean, even if you look it up on s Shob, Schwab's platform, like there's 10 of 'em, right? How do I pick? So you do have to, you know, do your, do your homework on these. Let me try to add to that explanation too about like where you would actually use these, so, Let's say that you had a portfolio that had TBIs in it and you wanted to have some of that money as it matured or money in there that was gonna be liquid, where you can get access to in a short amount of time.
In another type of fund that you wanted earning a higher interest rate, you could buy like one of these funds that Josh is talking about, where the money could be liquidated the next day and you're not waiting like a CD for two months or three months or nine months for the money to become liquid, but you're getting a higher interest rate in this money fund in your brokerage account.
While it's sitting in cash or it's being, it's pretty much liquid, you know, but with a day's notice. That's a really good explanation. Yeah. I'm glad you elaborated that more. It's also a good place to park cash if like you've created cash for your monthly income, like for retirees. I know. That's where we're using it a lot too.
So just another good strategy or use case. Yeah. So the, you could do a T bell, right. And go direct. Which is one option. Option two is a money market fund, which is, you should probably buy one with T-bills. Cause like you're saying, Josh, that's the safest. Your trade off though, you're gonna pay at the fund company the expense ratio, which is why their rate's a little bit lower.
Mm-hmm. And I think that to help the listeners, I think one of the things that we've been talking about too is really two different things. And I, I only realize this now as we've been going through it. The first things we were talking about were savings accounts and CDs. And a lot of that happens on the banking side.
Yes. Right. So that's your everyday banking liquid money and CDs and, and not to cut you off. Banks have money markets, right. Deposit accounts, right? Yes. So what we're talking about, I'll let you continue, but banks do, this is why people get so confused. Correct? It's confusing. Yes. No. On the other side, what we've been talking about is the T-bills and these money market funds.
We're talking about more on the brokerage account side. So you have money at a, a custodian. And your money's sitting there and you're trying to figure out how to get the higher interest rate out of it with the same complications of liquidity, higher interest, not tying it up for too long. You're talking about T-bills, which are more similar to CDs and you're talking about a money market fund, which is more similar to the money market savings accounts that we've been talking about.
So kind of just two different institutions. Now, they all can intertwine and they all have the different options. I think if you dig deeper into the weeds, but we're talking about kind of separating those between banking and custodians. So Brent, let's just role play. Let's pretend I'm 57, all right? I already got my 401k.
I'm still working and got, you know, a million and a half in the 4 0 1, but I got two 50 in the bank and I'm listening to this podcast. I'm like, these guys are making a lot of sense, but it sounds confusing. So I come and I hire you. I don't wanna take risk on my money. How you setting me up two 50? Well, I mean it's, it's too broad of a situation to be able to give like a very specific recommendation.
But if you're saying, Hey, I need this money liquid, and I want to hire interest rate on it, then we're breaking down what the different options are between, Hey, are you gonna use an online savings account and here's what the online savings account is paying. Versus are we gonna put it in a brokerage account and buy T-bills in a money market fund?
We know from the TBI side we're gonna exempt state taxes. What state do you live in? So you're gonna calculate out what their net rate of return is gonna be, and then you're probably comparing them to the two benefits pros of one side and cons and pros. On the other side, you're just cross comparing 'em and then giving, you know, letting the client decide.
But I think what we're doing is, is providing framework, right? Because there's also other. Deposit, you know options. There's products offered by insurance companies. We can go down that road. So I think that this is some, like good framing of this is what you should be kind of looking for to start your research or reach out, obviously to an advisor to help you.
But this is gonna give you a good idea of where to start. So there's lots of new options. The options are confusing. You need to figure out what's best for you before you can even pick one of the three or four options we've talked about today. Yes. And I think it's, you know, helpful to work with an advisor that can help navigate these.
Cuz we've been working on these things with our clients since they've engaged with us. I mean savings account strategies. Is like the first place we start, you're sitting on money. How do we get it invested, earning some interest? Where's the safest place to do it? Here's the options, here's the different ways to do it.
And we're talking about cash management, not even for your savings, but like in your brokerage account, in your retirement account. What is that cash management strategy? Cuz you know cash is something we can earn a little bit more interest on and it's all gonna help you long term. So. And when I say custodians, I'm talking about td or what was td Charles Schwab fidelity Institution.
Somebody once asked me, they thought, when I kept saying custodian, I was talking about the person that cleans. So, but I wanna be clear on what custodian actually means cuz. Oh, your money's being held. Yes. Yeah. Yeah. That's funny you to go back to your story though. Like, I remember studying like. Finance in college.
Right. And like we, we talked about money markets. I just wanted to touch on that real quick too. Cause it was like, man, I wanna be talking and explaining and purchasing money market funds like crazy, right? Like once I get into the real world, and then once we got into like finance into the real world and started working like nobody used them like you were explaining.
So it's just really cool now to be like, oh, we studied these, we didn't use them for a very long time. And then now we're finally using them. So. Nobody used a money market fund for like 12 years. I literally, I hadn't heard the word mentioned until last year. Yeah. It's sad for people who had put all their 401k over the last five years into a money market fund and their 401k cuz that money didn't earn anything.
They earned zero. Yeah. And we've had a nice bull run, you know, up for several years. Absolutely. Do you guys have anything else to add on this topic or should we jump into the recommends? I, I, again, I want to reiterate, I think it's most important on when trying to decide what to do with your cash or what to do with liquid money.
If you don't have an advisor, it may be time to engage. If you don't want to engage with an advisor, spend some time looking into what type of online savings account, what your different options are. Is it worth going with a custodian or a bank? And then make sure that you're sort of self-managing this and spending the time on it.
It could be tedious. It does take a lot of time, but it also could be very beneficial because you make more money. Yep. And I think my final note would be, we haven't even said that with a dollar trade off is cause a lot of people don't think in percents, but at 5%, you know, if you have a hundred thousand cent in the bank, you're costing yourself $5,000 a year in interest.
That's a lot of money because you're not having to do anything for that 5,000. Yeah. Was that 500 a month Almost? That is a lot of money. Yeah. All right, well, let's get into recommends something we haven't talked about in a little while. Yeah, I'm ready to go. Can I go first? Hit it. Okay. So while I was on paternity leave, we took my daughter to the bookstore and I didn't really know bookstores were still around.
But so she's two and a half, and we went to, I think it's called Romans in Pasadena. It's a pretty famous bookstore, if you're familiar with the Pasadena area. But she had so much fun. We bought like, I think 13 books for her. She was just going up and down the aisles picking books, and I know bookstores are dead for you know, most adults or like, they just order their chapter book on Amazon if they want it, or they buy it on Kindle and read it that way.
But you know, a kid's bookstore or a bookstore like for the kids section, that's where it's at. That was a lot of fun. Oh you walk into Barnes and Nobles near me and there's, it's does not look like a bookstore is dead for adults cuz it's always crowded and my kids love that place. But are there, you've always said that you've given me that recommendation, like for the future.
Like, you know, you take your kids to the bookstore and they absolutely love it. Yeah. If you told, I asked my kids, do you want to go to Target or the bookstore? They'll pick the bookstore all day long. Yeah, so we picked her out. All these new books, we read 'em, she's already bored of 'em. So I feel like we need to go back and go buy Bo cuz we read the, you know, we read like five books a night before she goes to bed.
So now I know when to get Charlotte for her birthday books. Yeah. Oh yeah. This is the best present. Well, no, no, no. Just even a gift card to be able to go to the bookstore and pick out her own books. Yeah, she'd love that. You want me to give you another helpful hint That's very fun. Is going to the library.
Take her to the library. You don't have to purchase them. You Bart, you know, you rent them and then you bring 'em back. So Hailey was thinking of doing that with her next week cuz she figured she'd really like it. Kids love the library. Oh, that's a good idea. Yeah. My wife already took our little son to the library and he loved it.
Yeah, they get a pick books, they get bored of the books. In a week you drop 'em off and then you go get more books. That's cool. See? Gosh. I always feel like library books are dirty. They, but they are. They are. But I mean that's kind like covid over. Didn't you go to the library when you were a kid? Yeah, but I didn't like reading 'em cause they're dirty.
All right. Enough about me. Let's move on here. All right. What do you have for us? I'll I'm going on the parenting track too. We got a water table. I didn't really know what those were before I had kids, but we got a water table for our son in the backyard and. Really, I, if, I'm sure a lot of parents and grandparents know already what this is, but we just got it from Costco.
You like fill it up with water, has a bunch of toys. And our son went crazy for it. Like he was soaking wet. I mean, there was not even any water running, right. It was just him splashing and playing around it and he absolutely loved it. So I loved seeing him light up. But just you know, a good activity for outside now that it's, Somewhat getting a little warmer.
And he loved it. So that, that's my recommends for any new dads out there for your kids or if they have grandkids. Or if they have grandkids. Yeah. It's a great activity just to go in the backyard and it's not, you know, besides the water, it's not messy like paint or sand or something like that. It was just them playing and he had a great, great time.
Yeah. We have one of those. Charlotte Lake soon. Yeah. Yeah. Just make sure you drain the water at night. Yeah, I saw. So after that we got it. In the like Instagram's algorithm. Must have heard me talk about it or something? Yeah. Because then I got a video of like how to make sure your water table doesn't get moldy.
Yeah. And like spray vinegar, mosquitoes and stuff like that. Yeah. So water tables are the best cuz kids they'll spend hours playing in a water table. I was amazed and he was just like focused on this water table and just soaking wet. He didn't care. That's great. That is great. Kids like water and books.
My recommend is something we probably needed to do headlines on or even a whole show on. And that's the evolution of ai, artificial intelligence. I mean, this stuff is coming quickly. I know it's been in the works for a, a long time, right? It's been three to five years that they've been really pushing hard at it.
I mean, obviously it's been an evolution, but now it's here and it's not going away. If you listen to most CEOs talk right now, it's all about AI and how it's changing productivity. If you want to start getting maybe a little bit better understanding of it, a simple place to start, I don't know if you guys would agree, would be chat.
G G P T. Yeah. And the reason why is because you could start to see what they're doing with. Making things easier. It's so great. Yeah. So chat, G P T, it's like a chat app, right? But so last night we were watching this show called The White House Plumbers, and it's based in the 1970s on the Watergate scandal.
And they were talking about something called the Bay of Pigs, and I didn't know what that was. So instead of pulling out Google and going through Google's, I pulled up my iPhone, opened my chat, G P T app. I said, what was the Bay of Pigs? Gave me three paragraphs on it. I asked a couple follow up questions.
It spit out those answers and I was completely caught up, knew what was going on in the show, press play on the show, and I was good to go. It's amazing and and what it nice use case. Yeah. And what it basically does is it's basically, you know, I've always told you, Matt, that you're very good at Google research, right?
Like if you could learn how to research very quickly, but now sort of that ability is obsolete almost now because, Now you have something that scrapes the internet and gives you exactly what you're looking for in a much shorter amount of time. And I think though, like if you're already like to research or it's part of your job or you're already kind of good at it, it's just gonna make it even better.
Right? Like cuz it's pulling, like you said, data so quickly. It's scanning, you know, so many resources in the internet for you. And I think another good resource, just to piggyback on your recommends though, if you have a Google account, Google Bard is out there. You can Google that. B a r d. That's really easy cuz you, if you already have a Google account, you don't need to sign up for anything new and they have a chat as well.
So the nice thing about Bard is it has access to realtime information. So I, to, the way I found that data on Apple and the credit cards is I just asked Bard and it pulled up the Forbes article for me and told me what it was. So that's really cool. Yeah, I think you know, like if you had an email or, or needed to create a response, To something where you really didn't know what to say or how to say it.
I mean, you plugged that into chat g p T, it's gonna give you a response and it's probably gonna write it a lot more professionally and a lot more articulate than probably any of us could write it. And it corrects your work too. Like if you write an email you can say, Hey, just correct this for grammar and you know, make me sound less stupid.
Yeah, it does that. It's great. Great tool. You, you know, I think, you know, if we talked long term together for a long period of time about how AI is gonna change actually. The world, you know, you're probably gonna see a lot of jobs lost, but you're also probably gonna see a lot of jobs gained because it is probably going to make people more pro productive and it's probably gonna change the way that people work.
Yeah, it could be the, you know, the next thing that really changes industries and even potentially like our economy, right? So something I agree, something to be looking out for and researching. If you haven't already, we should probably maybe do a show on it coming up. I think you know, our listeners would like, like to learn more about it and how it impact some.
Maybe I'll be the contrarian, though. I'm not embracing AI on that show just for fun. No, I I, Josh you have been embracing, you have, and it's helped us tremendously already. So I, I think people wanna learn about it, they just don't know enough about it yet. Yeah. I agree. All right, so wanna thank you as always for listening to the show.
If you have any questions, you could always reach out to us directly@rpawealth.com. Or you could also reach our show notes@retirementplanplaybook.com. But we always enjoy doing these shows, so thank you for listening. Thank you. Thank you.