Ever since Cyprus, Jeremiah is skittish about his bank account. Here is a Harvard professor reminding us that bank deposits do not compensate for even a slight risk of default.
If the chance that Bank of America will not return my money is, say, a mere 1 percent, then the expected cost to me is 1 percent of my [savings]. That far exceeds the interest I receive, which, I hardly need remind depositors, is a cool $0.
We covered this calculation during the Cyprus event. Banks pay a risk premium to big investors – you are just a hind-tit unsecured creditor. Before switching to money market funds, be aware that the Fed’s proposed minimum balance at risk rules may bite you there, too.
It seems like your money is a problem that the government wants to solve. In Europe, they’re drawing up plans for forced investment in small business, infrastructure, and “other projects.”
The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy
If these are such swell investments, why isn’t Warren Buffett already in them? The definition of a good investment is one that you’re willing to make without the government forcing you.
Jeremiah is suspicious of any government “help” with retirement, including this new myRA plan. We already have Social Security, which takes from your paycheck today, in exchange for a hazy promise in the future. This sounds like the same deal, only dressed up like a Roth IRA.
One concern with myRA is that while the principal is guaranteed, the interest rate is not, and the rate of G Fund bonds could fall below the rate of inflation.
It sounds like myRA is less about your retirement, and more about making a market for U.S. bonds. We’d be believers if the plan let us invest in, say, inflation protected bonds – or Apple.
See also: Bonds and Discipline