Personal Finance 101 for Young Lawyers Forum

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Chrstgtr

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Re: Personal Finance 101 for Young Lawyers

Post by Chrstgtr » Tue Dec 29, 2020 2:06 am

lawstudent212 wrote:
Mon Dec 28, 2020 7:50 pm
Why do you believe it is tax inefficient? Are you assuming buying and selling under a year period?
Dividends are taxed as ordinary income. Unrealized cap gains aren't taxed. Realized long-term capital gains are taxed at lower rates than ordinary income. And short-term capital gains are taxed at the same rate as ordinary income. So, worst case scenario you have same tax efficiency. And, in the best, and most common, case scenario you are far, far more tax efficient doing index investing over dividend investing. Nevermind general boglehead total market returns outpace select stock returns.

This is really basic personal finance advice. Before you shill your own blog you should at least know what you're talking about.

masterherm

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Re: Personal Finance 101 for Young Lawyers

Post by masterherm » Tue Dec 29, 2020 10:17 am

Getting back to my original question (thanks for your lack of a contribution/derailment lawstudent) - Roth or trad 401k for big law? I’ve read trad is generally better to have optionality later on (can withdraw during low income years before/after retirement to get in a lower tax bracket), and that’s without assuming you’re only in big law for a few years. Is there any reason to stick with a Roth over a trad?

wwwcol

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Re: Personal Finance 101 for Young Lawyers

Post by wwwcol » Tue Dec 29, 2020 10:17 am

Chrstgtr wrote:
Tue Dec 29, 2020 2:06 am
lawstudent212 wrote:
Mon Dec 28, 2020 7:50 pm
Why do you believe it is tax inefficient? Are you assuming buying and selling under a year period?
Dividends are taxed as ordinary income. Unrealized cap gains aren't taxed. Realized long-term capital gains are taxed at lower rates than ordinary income. And short-term capital gains are taxed at the same rate as ordinary income. So, worst case scenario you have same tax efficiency. And, in the best, and most common, case scenario you are far, far more tax efficient doing index investing over dividend investing. Nevermind general boglehead total market returns outpace select stock returns.

This is really basic personal finance advice. Before you shill your own blog you should at least know what you're talking about.
Not to mention that many (most?) biglaw prohibit trading in individual equities to avoid insider trading issues. the person behind this blog clearly has no idea what they’re talking about

lawstudent212

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Re: Personal Finance 101 for Young Lawyers

Post by lawstudent212 » Tue Dec 29, 2020 12:41 pm

Qualified dividends (i.e. dividends from AT&T and other blue chip companies) are taxed at the same rate as long-term capital gains. You're correct that non-qualified dividends (i.e. dividends from REITs and MLPs) are taxed at ordinary income rates. Those are great investments in a Roth IRA account since those dividends can be received tax free and grow without any tax.

tlsguy2020

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Re: Personal Finance 101 for Young Lawyers

Post by tlsguy2020 » Tue Dec 29, 2020 2:15 pm

rnen22 wrote:
Wed Nov 18, 2020 10:23 pm
I had the Platinum card a few years ago. I got the 100k sign up bonus but cancelled after 1 year since I found that I rarely used the card's benefits. In comparison to the Chase Sapphire Reserve, the Platinum's benefits are much tougher and cumbersome to use. Many benefits have a lot strings attached, like the Uber credit which expires every month, and the airline credit which can't be used for gift cards. I personally only think the Platinum is worth it if you travel regularly from airports with centurion lounges, since they are a lot better and usually less crowded than the Priority Pass lounges that everyone and their brother can access these days. Since you won't travel that often in big law, don't think it's worth it.
I signed up for the Platinum this year for the 125k sign-up bonus. Extracting value seems to require more gamesmanship and research than the CSR, but I've been able to do so. Mainly, there's a method to use the airline credit for SW vouchers. However, outside of getting the card for the SUB, I think that it's probably better suited for properly wealthy people that spend a lot on luxury as a matter of course.

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tlsguy2020

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Re: Personal Finance 101 for Young Lawyers

Post by tlsguy2020 » Tue Dec 29, 2020 2:21 pm

masterherm wrote:
Tue Dec 29, 2020 10:17 am
Getting back to my original question (thanks for your lack of a contribution/derailment lawstudent) - Roth or trad 401k for big law? I’ve read trad is generally better to have optionality later on (can withdraw during low income years before/after retirement to get in a lower tax bracket), and that’s without assuming you’re only in big law for a few years. Is there any reason to stick with a Roth over a trad?
Back of envelope math, but: if you're a first-year at 190, maxing out traditional 401k saves you $8,000 in taxes. You can put $6000 of that saved $8000 into a backdoor roth. My understanding is that this math works out better than if you max out Roth 401k instead.

kaiser

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Re: Personal Finance 101 for Young Lawyers

Post by kaiser » Tue Dec 29, 2020 3:58 pm

wwwcol wrote:
Tue Dec 29, 2020 10:17 am
Chrstgtr wrote:
Tue Dec 29, 2020 2:06 am
lawstudent212 wrote:
Mon Dec 28, 2020 7:50 pm
Why do you believe it is tax inefficient? Are you assuming buying and selling under a year period?
Dividends are taxed as ordinary income. Unrealized cap gains aren't taxed. Realized long-term capital gains are taxed at lower rates than ordinary income. And short-term capital gains are taxed at the same rate as ordinary income. So, worst case scenario you have same tax efficiency. And, in the best, and most common, case scenario you are far, far more tax efficient doing index investing over dividend investing. Nevermind general boglehead total market returns outpace select stock returns.

This is really basic personal finance advice. Before you shill your own blog you should at least know what you're talking about.
Not to mention that many (most?) biglaw prohibit trading in individual equities to avoid insider trading issues. the person behind this blog clearly has no idea what they’re talking about
You sure about that? I worked for 2 biglaw firms, and there was no prohibition on trading equities, whether individual stocks or mutual funds/ETFs (of course, always with the caveat that insider trading is prohibited). I even spoke with our firm counsel on the ETF question since I do know that a select few biglaw firms prohibit attorneys from trading ETFs, but was told it is not a problem. You worked for a firm that flatly prohibited any trading of individual equities?

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jrthor10

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Re: Personal Finance 101 for Young Lawyers

Post by jrthor10 » Tue Dec 29, 2020 4:39 pm

Looking for advice:

I am finally at the point where I am maxing out my retirement contributions, have a comfortable emergency fund, and no specific big-ticket savings goals over the next 12 months. Conventional wisdom seems to suggest I start putting the balance in an index fund, but I think we may in a bubble, and I may need access to funds within the next 12 months for a specific investment. With high-yield savings accounts offering very low APYs given the current environment, is there another option that is slightly less risky than an index fund play but offers a higher return than the ~.50% APY I can get through my online savings account?

Chrstgtr

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Re: Personal Finance 101 for Young Lawyers

Post by Chrstgtr » Tue Dec 29, 2020 4:53 pm

kaiser wrote:
Tue Dec 29, 2020 3:58 pm
wwwcol wrote:
Tue Dec 29, 2020 10:17 am
Chrstgtr wrote:
Tue Dec 29, 2020 2:06 am
lawstudent212 wrote:
Mon Dec 28, 2020 7:50 pm
Why do you believe it is tax inefficient? Are you assuming buying and selling under a year period?
Dividends are taxed as ordinary income. Unrealized cap gains aren't taxed. Realized long-term capital gains are taxed at lower rates than ordinary income. And short-term capital gains are taxed at the same rate as ordinary income. So, worst case scenario you have same tax efficiency. And, in the best, and most common, case scenario you are far, far more tax efficient doing index investing over dividend investing. Nevermind general boglehead total market returns outpace select stock returns.

This is really basic personal finance advice. Before you shill your own blog you should at least know what you're talking about.
Not to mention that many (most?) biglaw prohibit trading in individual equities to avoid insider trading issues. the person behind this blog clearly has no idea what they’re talking about

You sure about that? I worked for 2 biglaw firms, and there was no prohibition on trading equities, whether individual stocks or mutual funds/ETFs (of course, always with the caveat that insider trading is prohibited). I even spoke with our firm counsel on the ETF question since I do know that a select few biglaw firms prohibit attorneys from trading ETFs, but was told it is not a problem. You worked for a firm that flatly prohibited any trading of individual equities?
Every firm will prohibit it because of insider trading risks. You will have to get clearance to buy/sell indvl stocks from GC. So you're allowed to, but only after clearance. And if you don't get clearance you could be unwittingly buying/selling securities that your firm is working a related matter on and have that knowledge imputed to you even if you have no actual knowledge.

ETFs are broad based and don't have the same insider trading implications.

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Chrstgtr

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Re: Personal Finance 101 for Young Lawyers

Post by Chrstgtr » Tue Dec 29, 2020 4:59 pm

masterherm wrote:
Tue Dec 29, 2020 10:17 am
Getting back to my original question (thanks for your lack of a contribution/derailment lawstudent) - Roth or trad 401k for big law? I’ve read trad is generally better to have optionality later on (can withdraw during low income years before/after retirement to get in a lower tax bracket), and that’s without assuming you’re only in big law for a few years. Is there any reason to stick with a Roth over a trad?
Chill, dude. It's a forum with multiple conversations, and no one actually replied to you (nor does anyone have to).

To answer your question, 401K. This assumes that tax rates will be the sameish (or lower) when you retire.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Dec 29, 2020 5:49 pm

jrthor10 wrote:
Tue Dec 29, 2020 4:39 pm
Looking for advice:

I am finally at the point where I am maxing out my retirement contributions, have a comfortable emergency fund, and no specific big-ticket savings goals over the next 12 months. Conventional wisdom seems to suggest I start putting the balance in an index fund, but I think we may in a bubble, and I may need access to funds within the next 12 months for a specific investment. With high-yield savings accounts offering very low APYs given the current environment, is there another option that is slightly less risky than an index fund play but offers a higher return than the ~.50% APY I can get through my online savings account?
Investment grade bonds / treasuries fit the bill and MAY even be countercyclical (depending on if you think the IG credits can withstand a downturn).

tlsguy2020

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Re: Personal Finance 101 for Young Lawyers

Post by tlsguy2020 » Tue Dec 29, 2020 8:04 pm

jrthor10 wrote:
Tue Dec 29, 2020 4:39 pm
Looking for advice:

I am finally at the point where I am maxing out my retirement contributions, have a comfortable emergency fund, and no specific big-ticket savings goals over the next 12 months. Conventional wisdom seems to suggest I start putting the balance in an index fund, but I think we may in a bubble, and I may need access to funds within the next 12 months for a specific investment. With high-yield savings accounts offering very low APYs given the current environment, is there another option that is slightly less risky than an index fund play but offers a higher return than the ~.50% APY I can get through my online savings account?
Depending on your tolerance for starting a new hobby moving money around, you could follow this dude's advice on getting 5% APY savings accounts. Or just churn bank account sign-up fees. https://financialpanther.com/put-emergency-fund/

I personally wouldn't because I have ADHD and would fuck something up, but to each their own.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Dec 29, 2020 8:10 pm

Chrstgtr wrote:
Tue Dec 29, 2020 4:53 pm
kaiser wrote:
Tue Dec 29, 2020 3:58 pm
wwwcol wrote:
Tue Dec 29, 2020 10:17 am
Chrstgtr wrote:
Tue Dec 29, 2020 2:06 am
lawstudent212 wrote:
Mon Dec 28, 2020 7:50 pm
Why do you believe it is tax inefficient? Are you assuming buying and selling under a year period?
Dividends are taxed as ordinary income. Unrealized cap gains aren't taxed. Realized long-term capital gains are taxed at lower rates than ordinary income. And short-term capital gains are taxed at the same rate as ordinary income. So, worst case scenario you have same tax efficiency. And, in the best, and most common, case scenario you are far, far more tax efficient doing index investing over dividend investing. Nevermind general boglehead total market returns outpace select stock returns.

This is really basic personal finance advice. Before you shill your own blog you should at least know what you're talking about.
Not to mention that many (most?) biglaw prohibit trading in individual equities to avoid insider trading issues. the person behind this blog clearly has no idea what they’re talking about

You sure about that? I worked for 2 biglaw firms, and there was no prohibition on trading equities, whether individual stocks or mutual funds/ETFs (of course, always with the caveat that insider trading is prohibited). I even spoke with our firm counsel on the ETF question since I do know that a select few biglaw firms prohibit attorneys from trading ETFs, but was told it is not a problem. You worked for a firm that flatly prohibited any trading of individual equities?
Every firm will prohibit it because of insider trading risks. You will have to get clearance to buy/sell indvl stocks from GC. So you're allowed to, but only after clearance. And if you don't get clearance you could be unwittingly buying/selling securities that your firm is working a related matter on and have that knowledge imputed to you even if you have no actual knowledge.

ETFs are broad based and don't have the same insider trading implications.
Summered at a V20 this past summer and they had an extensive training session on the clearance process and how you shouldn't buy individual stocks without first using the clearance tool because of this. Friends who summered at some other firms had similar trainings. Just wanted to add for other students like me who are trying to figure out their future finances that this is something to be aware of.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Jan 04, 2021 7:37 pm

tlsguy2020 wrote:
Tue Dec 29, 2020 2:21 pm
masterherm wrote:
Tue Dec 29, 2020 10:17 am
Getting back to my original question (thanks for your lack of a contribution/derailment lawstudent) - Roth or trad 401k for big law? I’ve read trad is generally better to have optionality later on (can withdraw during low income years before/after retirement to get in a lower tax bracket), and that’s without assuming you’re only in big law for a few years. Is there any reason to stick with a Roth over a trad?
Back of envelope math, but: if you're a first-year at 190, maxing out traditional 401k saves you $8,000 in taxes. You can put $6000 of that saved $8000 into a backdoor roth. My understanding is that this math works out better than if you max out Roth 401k instead.
Anything you roll over from a traditional 401k to a roth 401k must have taxes paid on it. What you do is put $19k into a traditional 401k, open another traditional 401k, put 6k after tax into the second traditional 401k and roll that $6k into a roth

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Jan 05, 2021 2:27 pm

If my current salary (as a fed clerk) is not above the income limit for a Roth IRA, but I will be joining a law firm (with a clerkship bonus) later this fall that puts me over the limit for 2021, there is no downside to maxing out a backdoor Roth now right?

I.e. rather than continuing to fund my Roth IRA, I would open a trad IRA and immediately roll it over?

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Tue Jan 05, 2021 4:34 pm

Anonymous User wrote:
Tue Jan 05, 2021 2:27 pm
If my current salary (as a fed clerk) is not above the income limit for a Roth IRA, but I will be joining a law firm (with a clerkship bonus) later this fall that puts me over the limit for 2021, there is no downside to maxing out a backdoor Roth now right?

I.e. rather than continuing to fund my Roth IRA, I would open a trad IRA and immediately roll it over?
Yeah. You just open a Trad IRA and immediately convert to Roth. Silly rules are silly, but no reason not to do it. Also look into whether your firm allows post-tax 401k contributions and in-service rollovers for the "mega backdoor" Roth.

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Re: Personal Finance 101 for Young Lawyers

Post by lawlo » Mon Jan 25, 2021 1:12 am

Hi all,

Looks like the student loan interest and payment moratorium has been extended until September. I was planning to drop around $3k a month into these. What should I be doing now? Placing the payments I would have been making into a Vanguard ETF?
Might as well collect some interest on this extra cash and drop it into my loan balance as a lump sum in September.

Thank you!

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The Lsat Airbender

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Re: Personal Finance 101 for Young Lawyers

Post by The Lsat Airbender » Mon Jan 25, 2021 11:25 am

If you're going to use the money to pay down debt in September anyway, then the exposure to stock-market beta probably isn't worth the risk and you should instead use a HYSA or something.

If you want to be more aggressive, put the money in the stock market and then leave it there and simply resume payments on your loans in September. This makes sense if your expected market return exceeds the interest rate on the loans, which I hope it does.

sparty99

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Re: Personal Finance 101 for Young Lawyers

Post by sparty99 » Mon Jan 25, 2021 6:50 pm

lawlo wrote:
Mon Jan 25, 2021 1:12 am
Hi all,

Looks like the student loan interest and payment moratorium has been extended until September. I was planning to drop around $3k a month into these. What should I be doing now? Placing the payments I would have been making into a Vanguard ETF?
Might as well collect some interest on this extra cash and drop it into my loan balance as a lump sum in September.

Thank you!
I would invest that $3k (or $24,000) into the stock market. Specifically, VDE (Vanguard Energy) which is low. Or there are many other stocks that are ready to strike and could have doubled by October. Look at Wells Fargo, American Airlines,. There are other stocks I like as well, but this is not a stock market site. But I would have this money in the stock market, ASAP.

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Wed Feb 03, 2021 1:56 pm

jrthor10 wrote:
Tue Dec 29, 2020 4:39 pm
Looking for advice:

I am finally at the point where I am maxing out my retirement contributions, have a comfortable emergency fund, and no specific big-ticket savings goals over the next 12 months. Conventional wisdom seems to suggest I start putting the balance in an index fund, but I think we may in a bubble, and I may need access to funds within the next 12 months for a specific investment. With high-yield savings accounts offering very low APYs given the current environment, is there another option that is slightly less risky than an index fund play but offers a higher return than the ~.50% APY I can get through my online savings account?
The key with the stock market is "time in the market", not timing the market. The stock market was arguably in a bubble in 1996, but if you had stayed in cash, you would have missed a massive runup through 1999. If you really need the money in 12 months, however, the market isn't the place to put it.

Frankly, there's nothing that's going to be meaningfully better than your .5%APY without taking on some risk, other than some marginally better CDs or short term bonds. Even Vanguard BND total bond market fund (medium term bonds) is yielding barely over 1%. Nothing in the bond market is paying enough to justify the risk over CDs for funds you need in a year.

The Lsat Airbender

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Re: Personal Finance 101 for Young Lawyers

Post by The Lsat Airbender » Thu Feb 04, 2021 6:25 pm

nealric wrote:
Wed Feb 03, 2021 1:56 pm
Even Vanguard BND total bond market fund (medium term bonds) is yielding barely over 1%. Nothing in the bond market is paying enough to justify the risk over CDs for funds you need in a year.
Where are you seeing that? My broker quotes the dividend yield for BND as a little over 2%. Agree that, if you'll need the money within 12 months, it's not worth the risk to pick up pennies off the floor, but that's still a decent spread compared to HYSAs right now.

All I want from a bond fund is "sorta attempts to keep pace with inflation" and "uncorrelated with stocks"

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Re: Personal Finance 101 for Young Lawyers

Post by sparty99 » Thu Feb 04, 2021 8:14 pm

The Lsat Airbender wrote:
Thu Feb 04, 2021 6:25 pm
nealric wrote:
Wed Feb 03, 2021 1:56 pm
Even Vanguard BND total bond market fund (medium term bonds) is yielding barely over 1%. Nothing in the bond market is paying enough to justify the risk over CDs for funds you need in a year.
Where are you seeing that? My broker quotes the dividend yield for BND as a little over 2%. Agree that, if you'll need the money within 12 months, it's not worth the risk to pick up pennies off the floor, but that's still a decent spread compared to HYSAs right now.

All I want from a bond fund is "sorta attempts to keep pace with inflation" and "uncorrelated with stocks"
I earned 50 percent ROI in one week on some of those meme stocks. Why you talking about bonds.

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Re: Personal Finance 101 for Young Lawyers

Post by jsnow212 » Thu Feb 04, 2021 9:04 pm

Zero reason to invest in bonds right now. To the extent you are, it should be within a target dated fund.

Bonds will not beat inflation and will lose value principal value if interest rates rise. You're better off just keeping the money in a CD (if you really just want a cash equivalent) or buying index funds/blue chip stocks.

The Lsat Airbender

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Re: Personal Finance 101 for Young Lawyers

Post by The Lsat Airbender » Thu Feb 04, 2021 11:22 pm

jsnow212 wrote:
Thu Feb 04, 2021 9:04 pm
Zero reason to invest in bonds right now. To the extent you are, it should be within a target dated fund.

Bonds will not beat inflation and will lose value principal value if interest rates rise. You're better off just keeping the money in a CD (if you really just want a cash equivalent) or buying index funds/blue chip stocks.
Eh, the risk-adjusted returns still beat cash. I keep my rainy-day savings in a 40/40/20 mix of CDs/HYSA/bonds. Maybe that's too fancy to be worthwhile but it's a tiny amount of money compared to the equity exposure in my retirement accounts so I don't mind missing out on that sweet stock-market beta.

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Mon Feb 08, 2021 11:42 am

The Lsat Airbender wrote:
Thu Feb 04, 2021 6:25 pm
nealric wrote:
Wed Feb 03, 2021 1:56 pm
Even Vanguard BND total bond market fund (medium term bonds) is yielding barely over 1%. Nothing in the bond market is paying enough to justify the risk over CDs for funds you need in a year.
Where are you seeing that? My broker quotes the dividend yield for BND as a little over 2%. Agree that, if you'll need the money within 12 months, it's not worth the risk to pick up pennies off the floor, but that's still a decent spread compared to HYSAs right now.

All I want from a bond fund is "sorta attempts to keep pace with inflation" and "uncorrelated with stocks"
https://investor.vanguard.com/etf/profile/BND

The current yield to maturity is 1.1%, which is what it should theoretically return if there are no changes to interest rates or other market forces impacting the bond market. If you are looking at past year returns, they are likely to be higher.

If you just want to keep pace with inflation, there are TIPS. (treasury inflation protected securities), but rates are currently negative on TIPS.

https://www.investopedia.com/terms/t/ti ... ecurity%20(TIPS,principal%20value%20of%20the%20bond.

Long story short, there's really nothing much better than a CD or high yield savings account right now if you absolutely must protect principal.

Seriously? What are you waiting for?

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