Why People Are Rich, Just Keep Buying, and How Many Americans Own Stocks

Plus: Risk Free Rate and Series I Bonds

written by oz chen

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Compliment of the week: You’re a first-rate person.

I haven’t done a “finance brain dump” in a while. Here’s what I’ve been reading and learning in the world of personal finance.

💸 “Why is a Person Rich?”

When the people shall have nothing more to eat, they will eat the rich. Jean-Jacques Rousseau

Check out Pew’s Why is a Person Rich survey done in 2020.

Finally, I’m not crazy. I thought I’ve been seeing a lot more anti-rich sentiments on social media.

“Nearly two-thirds of U.S. adults (65%) say the main reason some people are rich is because they have had more advantages in life than most other people; far fewer say it is because they have worked harder than others (33%).” This study was done in 2020, shows an increase in these sentiments compared to before.

Search the term eat the rich on Twitter and here’s an example sentiment you’ll get:

Interestingly, the older the respondent, the less bothered they are with the rich. This makes sense – people’s wealth generally grow as they age. They’ve also worked more years, which may shift their perspective.

After reading through the survey, one question;s sticking in my mind: What would be considered a fair vs unfair advantage? We’re used to tangible advantages, e.g. “this dude got $1 million from his parents,” but what about intangible ones like being taught good money habits from an young age?

📚 Just Keep Buying

Imagine that Psychology of Money had a follow-up sequel that focused on answering everyday money questions backed by historical data, and you’ll get this book: Just Keep Buying.

I’ve been a long time reader of Nick Maggiuli’s finance blog Of Dollars and Data.
His writing style translates very well to book form. Each chapter opens with a relatable anecdote.
Just Keep Buying is totally worth the read. 5/5 would totally recommend.

I had the most highlights from the chapter called “When Should You Sell?” about when to sell your investments. These assume long term investments like an S&P 500 index fund. Here are some nuggets:

  • If you aren’t rebalancing your portfolio, getting out of a concentrated (or losing) position, or trying to meet a financial need, then I see no reason to sell an investment—ever.
  • Buy quickly, sell slowly. Selling over time (or as late as possible) is usually better than selling right away [for tax purposes].
  • Fund the life you need before you risk it for the life you want. Don’t be too greedy for a nebulous future if you can guarantee a GREAT life or financial outcome NOW

As a long term “buy and hold til forever” type of investor, my weakness was not having good mental models of when to sell my assets. Thanks to this book, now I have a mindset and plan around selling.

⁉️ Guess: how many Americans own stocks?

My guess was that ~80% of Americans owned stock, given how easy it is to invest today (thanks Internet!),

Turns out it’s much lower, according to an updated Gallup poll.

Now, 58% of U.S. adults owned stocks, down from 62% reported in 2001-2008.
The last great recession really put a damper on people’s finances.
And yet, I’m still shocked how low stock ownership is.

Is it these limiting beliefs that prevent people from investing?

It could also be income. The higher one’s income, the higher the stock ownership.
89% of people who made $100K+ owned stocks. It keeps dropping after that income level.

Even so, I’ve talked to a lot of people who are underinvesting. They might have some stocks and funds, but way too much cash sitting around not earning a cent. If this sounds like you, read my beginner’s guide to investing.

📏 Measure investments against the risk free rate

The risk free rate = safest rate you can get from the most trustworthy institutions, e.g. “Backed by the U.S. government.”

You’ll often see the risk free rate attached to terms like “T Bills” and “Treasuries.” This just refers to bonds the U.S. government issues.

The risk free rate is most commonly measured is the 3 month Treasury bill, which is 2.38% as of this writing.

The risk free rate matters because you can measure any other investment against it.

For the sake of comparison, let’s say you see an investment that returns 3%.
The chances seem low, but you could lose all your money if some crazy black swan event happened.
So, is risking a significant amount of money worth it for just 0.62% more returns? Probably not.

I think of risk free rates offered by government bonds as the minimum performance “floor” invesments must clear. If an investment pays 8%, that means I’m willing to risk my money for a 6% premium (8% – 2% risk free rate). And so on.

Here’s a really good video on the 10 year treasury note and why it matters.

You might be wondering: where do I buy and access those investments?

Onto the last nugget…

🧧 Treasury Direct: where I bought Series I Bonds

TreasuryDirect.gov is the government site that lets you buy the aforementioned “risk-free” investments: treasury bills and bonds with varying levels of duration.

There’s one particularly spicy investment called the Series I Savings Bond, which currently returns 9.62%. This is a very high rate for a risk free product. The Series I rates change every 6 months and are based on inflation.

Any qualified U.S. individual can buy up to $10,000 in Series I Bonds per year, and there are some extra tricks for buying more. Check out the Series I Savings Bond on the website for more info.

It just dawned on me after years of investing that extra cash I don’t need for 3+ months can and should be invested in Treasuries (see rate table). The difference can be 1% or more higher interest than what competitive online savings accounts offer.

Set up your account sooner rather than later
It was a 2 month process for me to get Series I Bonds. A LOT of people like me have been getting verification problems from Treasury Direct. This requires filling out a paper form and finding a bank to “sign off” on your identity – a huge hassle. Hopefully you don’t have to go through this, but if you’re interested in setting up a Treasury.gov account, do it sooner rather than later.

Just for fun:

Did you realize the word avoid is made up of the words “a” + “void”? To avoid something is to “make empty,” using a literal void through space.

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