The wealth-building thread

[Prana Ferox]

It doesn't make any sense to take the extra risk of an "unproven under fire" product like Fidelity's as you don't get any extra yield and you are taking on additional risk compared to buying T-bills directly. It is possible Fidelity could run into trouble with or without some type of systemic financial crisis and adding the worry of "losing all of your money for no reason" is always worse than "not losing all of your money".

If I buy a T-bill my money is locked away for a month or more, or I'm dealing with trying to sell the bill on the secondary market. Fidelity's cash management is a fancy version of a checking account. These aren't equivalent products.

 

[sdrichard]

The stock went from 54 to 27, at which point I could have bought. I eventually sold at 95, which was a good deal, but a lot less profit than I could have had.

Hindsight is always 20/20. The important thing is to stick to your strategy and not deviate from that.

 

[JeffS7444]

What to do in this hypothetical situation: Want stocks, but also want some sort of protection, should the investment company experience misfortune, such as security breach, including state-sponsored butt-headed sorts. SIPC covers up to $250K of qualified holdings (stocks, bonds, but notably, not crypto). And if the company also offers near-cash products, it’s possible to get another $250K coverage from the FDIC.

But what happens when you “max out” the low-cost leaders, including Schwab, Fidelity, and Vanguard? And maybe you don’t want to have so much $$ tied up in lower-yield CDs, T-bills, and other forms of near-cash. Is there no alternative but to open up an account with yet another company, say, Invesco, JP Morgan Chase, et al? Their S&P index funds are much pricier versus the aforementioned big three.

A Treasury Direct account sounds like an excellent idea for liquidity and security, but less so for growth. How nice it would be if I were in a position where I merely needed a safe place to park some cash, which more or less kept pace with inflation! Maybe someday.

 

[Blumlein 88]

What to do in this hypothetical situation: Want stocks, but also want some sort of protection, should the investment company experience misfortune, such as security breach, including state-sponsored butt-headed sorts. SIPC covers up to $250K of qualified holdings (stocks, bonds, but notably, not crypto). And if the company also offers near-cash products, it’s possible to get another $250K coverage from the FDIC.

But what happens when you “max out” the low-cost leaders, including Schwab, Fidelity, and Vanguard? And maybe you don’t want to have so much $$ tied up in lower-yield CDs, T-bills, and other forms of near-cash. Is there no alternative but to open up an account with yet another company, say, Invesco, JP Morgan Chase, et al? Their S&P index funds are much pricier versus the aforementioned big three.

A Treasury Direct account sounds like an excellent idea for liquidity and security, but less so for growth. How nice it would be if I were in a position where I merely needed a safe place to park some cash, which more or less kept pace with inflation! Maybe someday.

I think the SIPC goes up to $500k instead of $250k. They offer additional coverage much higher via some private insurance they have. Don't know how reliable that would be if things went badly wrong. Even my credit union has that coverage to $1 million via some insurance. In case you don't know, you can get multiples more FDIC coverage via naming beneficiaries on accounts.

As for inflation coverage, TIPS I guess more or less do that and you can get them via Treasury Direct. Break them up into a ladder and you could access them via the secondary market though whether you get inflation protection selling prior to maturity is not guaranteed.

Otherwise I think it is the no free lunch situation.

 

[blueone]

In case you don't know, you can get multiples more FDIC coverage via naming beneficiaries on accounts.

I wish this was true, but it isn't for regular bank accounts. It is true for bank accounts held in revocable trusts, but oddly not irrevocable trusts, or at least that's what I think I read. This FDIC document is definitely a cure for insomnia.

https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english-hr.pdf

 

[Blumlein 88]

I wish this was true, but it isn't for regular bank accounts. It is true for bank accounts held in revocable trusts, but oddly not irrevocable trusts, or at least that's what I think I read. This FDIC document is definitely a cure for insomnia.

https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english-hr.pdf

An account with POD beneficiaries is considered an informal revocable trust account. It can be covered up to $1,250,000 with 5 named beneficiaries. It is on page 9 of the document you list. The account owner need only fill out a form. It can be changed adding or removing beneficiaries at any time by the main account owner. None of this otherwise effects the type of banking account you have or its features.

It has a couple wrinkles. One is if you only add one beneficiary you get that $250k coverage, but lose yours. So you want to add two at least. The other wrinkle is if beneficiaries have accounts with the same bank, their coverage limits are effected by having this coverage being named as beneficiaries.

This is often misunderstood. I've had this conversation with three different bank managers who didn't see it that way. There is an FDIC hotline banks can call and get answers. In each case they called and were told this is how it works.

From page 9 of that document:
Informal revocable trusts—often called payable on death, Totten trust, in trust for, or as trustee for accounts—are created when the account owner signs an agreement, usually part of the bank’s signature card, directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death.

 

[blueone]

An account with POD beneficiaries is considered an informal revocable trust account. It can be covered up to $1,250,000 with 5 named beneficiaries. It is on page 9 of the document you list. The account owner need only fill out a form. It can be changed adding or removing beneficiaries at any time by the main account owner. None of this otherwise effects the type of banking account you have or its features.

It has a couple wrinkles. One is if you only add one beneficiary you get that $250k coverage, but lose yours. So you want to add two at least. The other wrinkle is if beneficiaries have accounts with the same bank, their coverage limits are effected by having this coverage being named as beneficiaries.

This is often misunderstood. I've had this conversation with three different bank managers who didn't see it that way. There is an FDIC hotline banks can call and get answers. In each case they called and were told this is how it works.

From page 9 of that document:
Informal revocable trusts—often called payable on death, Totten trust, in trust for, or as trustee for accounts—are created when the account owner signs an agreement, usually part of the bank’s signature card, directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death.

I like it!

The part about an "informal revocable trust" eluded me. Nice work.

 

[blueone]

An account with POD beneficiaries is considered an informal revocable trust account. It can be covered up to $1,250,000 with 5 named beneficiaries. It is on page 9 of the document you list. The account owner need only fill out a form. It can be changed adding or removing beneficiaries at any time by the main account owner. None of this otherwise effects the type of banking account you have or its features.

It has a couple wrinkles. One is if you only add one beneficiary you get that $250k coverage, but lose yours. So you want to add two at least. The other wrinkle is if beneficiaries have accounts with the same bank, their coverage limits are effected by having this coverage being named as beneficiaries.

This is often misunderstood. I've had this conversation with three different bank managers who didn't see it that way. There is an FDIC hotline banks can call and get answers. In each case they called and were told this is how it works.

From page 9 of that document:
Informal revocable trusts—often called payable on death, Totten trust, in trust for, or as trustee for accounts—are created when the account owner signs an agreement, usually part of the bank’s signature card, directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death.

After reading your post, my curiosity was piqued, so I began to do a little more research. Not only are you correct, but apparently the FDIC document I referenced, from their own website no less, is actually out of date! The trust rule changed on April 1, 2024, but the FDIC hasn't updated that document. There is now no difference between the insurance limits on revocable versus irrevocable trusts. This law firm has a more up to date synopsis:

New FDIC Rules Change Coverage For Trust Accounts | Loeb & Loeb LLP

www.loeb.com

Since some banks don't allow beneficiaries on accounts, only "transfer on death", I'm still trying to determine if those two constructs are equal in the eyes of the FDIC. Perhaps you've already figured that out too.

 

[Blumlein 88]

After reading your post, my curiosity was piqued, so I began to do a little more research. Not only are you correct, but apparently the FDIC document I referenced, from their own website no less, is actually out of date! The trust rule changed on April 1, 2024, but the FDIC hasn't updated that document. There is now no difference between the insurance limits on revocable versus irrevocable trusts. This law firm has a more up to date synopsis:

New FDIC Rules Change Coverage For Trust Accounts | Loeb & Loeb LLP

www.loeb.com

Since some banks don't allow beneficiaries on accounts, only "transfer on death", I'm still trying to determine if those two constructs are equal in the eyes of the FDIC. Perhaps you've already figured that out too.

Prior to the rule change, I had some accounts labeled TOD. When you signed the beneficiary card, they had a little bit about TOD being treated as POD, which at first made me wonder, but I was told it would meet the FDIC rules to get the additional coverage limits. Since then they did change the wording on all of them to POD. I do think it was around early 2022 when the designation changed. I don't know about changes since April of this year, but apparently that was related.

 

[levimax]

With inflation and financial asset appreciation and new untested products I don't think FDIC and SPIC insurance are really enough in some cases. In case something really "bad" happens the "party line" is that "customer funds are segregated from the brokerage funds". That sounds good and people point to the fact that when Lehman Brother went bankrupt investors didn't lose anything because the "customer funds were segregated". Here is the part they don't talk about, while customer funds are segregated from the brokerage funds they are not separated from other customers. In the event something bad happened and some of these crazy new products (zero day options, 3X ETF's, Crypto currencies, etc.) "blew up" and took down the value of the segregated customer funds there may not be enough left to make everyone whole. I hadn't given this issue much thought recently but this thread got me thinking again.

 

[amper42]

S&P 500 is on sale. I'm nibbling.
MSFT 405.55
SPY 529.89
Nice.

Current August 6 MaxPain = SPY 546
It's possible next week could be positive as that's a 16 point move up from 530. Should be fun to watch.

 

[007Shorty]

Should be fun to watch.

I've seen that too. This could be the start of the big correction.
At the moment I am only in money market fund ETFs with approx. 4% interest rates (in Europe) and watching the yield curve. When it reaches +0.5 it's almost official.

(Aug 1, 2024 4:01 PM CDT) Source: https://fred.stlouisfed.org/series/T10Y2Y

The unemployment curve also signals alarm:

(Aug 2, 2024 4:01 PM CDT) Source: https://fred.stlouisfed.org/series/UNRATE

Good luck to us all.

 

[amper42]

I've seen that too. This could be the start of the big correction.
At the moment I am only in money market fund ETFs with approx. 4% interest rates (in Europe) and watching the yield curve. When it reaches +0.5 it's almost official.
View attachment 384292
(Aug 1, 2024 4:01 PM CDT) Source: https://fred.stlouisfed.org/series/T10Y2Y

The unemployment curve also signals alarm:
View attachment 384293
(Aug 2, 2024 4:01 PM CDT) Source: https://fred.stlouisfed.org/series/UNRATE

Good luck to us all.

With FED ready with interest rate cuts and with 5% in ammo it's likely this market move is an over reaction trying to shake out weak hands. Odds for a big rally next week are high.

 

[007Shorty]

With FED ready with interest rate cuts and with 5% in ammo it's likely this market move is an over reaction trying to shake out weak hands. Odds for a big rally next week are high.

A rally is definitely possible next week but the situation with Israel makes me a bit nervous. I think I will let next week's possible rally pass. You don't have to go to every party

 

[amper42]

There is always something I could worry about. Instead, I try to follow the big boys option activity and ignore the chatter.

 

[007Shorty]

There is always something I could worry about. Instead, I try to follow the big boys option activity and ignore the chatter.

I'll play the game slower. The really big opportunities are yet to come. I'm definitely keeping my fingers crossed for you.

 

[amper42]

I don't think we will see a BIG correction in the market until everyone wakes up one day and realizes AI isn't intelligent and mostly wrong information gathered from unreliable sources. It's stupid in, stupid out data on the best day. If anyone really thinks productivity can be increased with AI versus a thoughtful employee then that company will be surpassed and out of business in no time.

Try sending AI requests to the best services and you see old data being feed to requestors that's not current or accurate. AI is an absolute joke. In reality, it will try to fool you into relying on it and when you do the info will be totally wrong. You can spend as much time fact checking AI errors as doing your own work to begin with. Don't try to blame your errors from AI with the boss. He will fire you before the AI.

 

[Oso Polar]

AI is an absolute joke.

Sorry, this just shows that you are ignorant about AI.

 

[Blumlein 88]

Sorry, this just shows that you are ignorant about AI.

I sort of want to believe AI will work. I run into cases where it is a big help, and then it seems anything moderately complex about which I know more than a smattering it is mostly a big fail. I've said it before it reminds me of optical character recognition claims 15 or so years back. Claims of 98% accuracy were made. That was a bit stilted as it referred to type text only. Yet using it one quickly realized with 400-500 words per typed page flubbing 10 of those words could be disastrous. Yet it was good enough it was terribly tedious to check for those flubs over a few scanned pages. So it might mostly work, most of the time as the flubs usually weren't terrible, but that left just enough of an issue you could not trust it for anything of any importance. BTW, the best OCR is still only about 98 or 98.5% reliable. And not quite as good as one would expect when you show statistics like how often for each scan you can be 95% sure of 100% accurate results. I would consider 95% confidence a huge fail for the list of uses AI is trying to be put to now much less in the future.

I also think of riding in self driving Teslas. They work most of the time. They even are good enough overall they are safer than the average human driver. But the fails, man the fails can be BIG. I think currently humans are still less likely to make the big life threatening fails even though the Tesla software is less likely to make as many mistakes as a human driver. It is better at the small fails, worse at the big fails and not ready to trust yet.

My opinion is 5 years from now everyone will think AI was super over-hyped and 15 to 20 years from now it will have woven itself into so many things we literally will not be able to function without it. Between now and then which companies will shake out and be big winners and which will perish is totally a crapshoot. In retrospect some people are going to get rich from the right investments and lots of money will perish in the quest. Anyone who thinks just sink your funds into AI, even seemingly the best AI bets currently, probably more likely to lose than to win. All it takes is one little company getting it just right first to blow away all the competitors, or a few of the big guys working to get it right so everyone else is frozen out or any combination of crazy things in between. No one, certainly not current AI can predict how it will unfold.

 

[amper42]

I sort of want to believe AI will work. I run into cases where it is a big help, and then it seems anything moderately complex about which I know more than a smattering it is mostly a big fail. I've said it before it reminds me of optical character recognition claims 15 or so years back. Claims of 98% accuracy were made. That was a bit stilted as it referred to type text only. Yet using it one quickly realized with 400-500 words per typed page flubbing 10 of those words could be disastrous. Yet it was good enough it was terribly tedious to check for those flubs over a few scanned pages. So it might mostly work, most of the time as the flubs usually weren't terrible, but that left just enough of an issue you could not trust it for anything of any importance. BTW, the best OCR is still only about 98 or 98.5% reliable. And not quite as good as one would expect when you show statistics like how often for each scan you can be 95% sure of 100% accurate results. I would consider 95% confidence a huge fail for the list of uses AI is trying to be put to now much less in the future.

I also think of riding in self driving Teslas. They work most of the time. They even are good enough overall they are safer than the average human driver. But the fails, man the fails can be BIG. I think currently humans are still less likely to make the big life threatening fails even though the Tesla software is less likely to make as many mistakes as a human driver. It is better at the small fails, worse at the big fails and not ready to trust yet.

My opinion is 5 years from now everyone will think AI was super over-hyped and 15 to 20 years from now it will have woven itself into so many things we literally will not be able to function without it. Between now and then which companies will shake out and be big winners and which will perish is totally a crapshoot. In retrospect some people are going to get rich from the right investments and lots of money will perish in the quest. Anyone who thinks just sink your funds into AI, even seemingly the best AI bets currently, probably more likely to lose than to win. All it takes is one little company getting it just right first to blow away all the competitors, or a few of the big guys working to get it right so everyone else is frozen out or any combination of crazy things in between. No one, certainly not current AI can predict how it will unfold.

If you don't know anything about the topic you research with AI you might think it's an awesome tool. But as soon as you research a topic you are very familiar with you find AI responses are mostly wrong and drivel from the internet. The only AI that will be any good is one that's dataset is not polluted with internet searches and has a programmer team that only inputs verified data known to be true and accurate. ALSO, it will need to be programed in such a way to completely override old data with new parameters where science or circumstances have changed. It's not easy for current AI tech to do this on the fly. If you want an example, ask an AI who will win the 2024 US Election and the first response you are likely to receive will be talking about Biden running.

ps... the only people I know who think a self driving Tesla would be safe are non-programers. Ignorance is bliss.