Tuesday, June 24, 2014

Human Capital, Financial Capital

The value of a young person's future earned income typically is much larger than the value of her savings and investments. In economics jargon, her human capital is much larger than her financial capital. Conversely, an older person has much less human capital and hopefully much more financial capital. Human capital is converted to financial capital by working and saving over the years. A higher savings rate converts more human capital to financial capital. The ratio of human capital to financial capital is an important consideration in determining ability to take risk in one's investment portfolio.

Sunday, June 1, 2014

Synchrony Bank 5-Year CD

Note: Since originally publishing this, GE Capital Retail Bank has been renamed to Synchrony Bank, and the 5-year CD rate now is 2.25% instead of 2.30%. I have re-titled the post accordingly and done a few minor edits since I refer to this blog post so often in my Bogleheads posts.

I am in the process of transferring out of some bond funds and a money market fund in my IRA at Fidelity to a new IRA CD at GE Capital Retail Bank (GECRB, now Synchrony Bank). The CD interest rate is 2.30% APY (now 2.25%), and the early withdrawal penalty is six months of interest. This is an excellent fixed-income choice in today's ongoing-low-rate environment. PenFed credit union offered a much better deal back in December 2013 and January 2014, with a 5-year CD earning 3.03%, but nothing has come close to that since. Top CD rates have been hovering around 2.25% lately. Following are some details about what I've done so far to open the account and transfer the funds, and a recap of why I like CDs purchased directly from banks and credit unions.

Friday, May 16, 2014

Market Update

Financial markets have been relatively calm so far in 2014: US stocks have gained about 1-2%, total international stocks are up almost 3%, and total return on US bonds has been about 3.5% (I'm using returns from Vanguard's Total Stock Market Index, Total International Stock Index, and Total Bond Market Index funds). There was a mild correction in late January with US stocks down about 5% and international stocks down about 7%, but other than that, stocks have been mostly bouncing around the +/-2% range.

By contrast, 2013 was a big up year for stocks and a down year for bonds. US stocks returned more than 30%, international stocks returned about 15%, and the Total Bond Market index fund lost about 2%. US stocks got an extra boost from small-cap stocks which returned about 38% in 2013. International stocks were dragged down by emerging markets which lost about 5% in 2013, while developed international markets gained about 22%. Bond fund losses, caused by generally rising interest rates, were proportional to interest-rate risk (average maturity/duration of fund), with Vanguard's Inflation-Protected Securities fund losing almost 9% and its Long-Term Government Bond Index fund down about 12.5%.