Want to get paid for holding money at “risk free*”?

I’ve been asked many times lately where to invest money with “no risk”? – the traditional question of the risk-averse average person – if interest rates at banks are still yielding very low or even 0% on traditional deposits. Some individuals are holding a considerable amount of money, yielding 0%, when they can make 5% with no work at all. That is definitely worth taking the time to change the money to something that yields.Don’t be lazy! The last decade made us lazy about leaving the money not working for us. Times have changed! Earning 5% by essentially losing 1 hour is worth it! I am not talking about stocks and volatility… just basic very low risk government bond ETFs.

We are Back to Bonds – ETFs/Funds of bonds – Low-risk investing!

A quick answer – Buy IB01 ETF for 5.29% in USD, for EUR you can buy LU0128494944 for 3.59% (final July, it has increased now) … Go through a broker (Degiro, IBKR, and search for it) but it is better to read the rest!

Finally, after many years where a traditional portfolio allocation consisting of a % of bonds and % of stocks didn’t make any sense, we are back to bonds, at least I am.

The traditional 80%-20%, 50%-50% to 20-80% allocation depending on whether you were bullish on stocks or not didn’t work for the past decade.

Why should you allocate any value to bonds when they were yielding 0% or negative? Why chase the 1% and 2% for long 20-30 year returns with huge duration risks? (the reason why SVB and others collapsed!)

Fortunately, as opposed to fund managers, we as individual investors don’t have to show clients/investors that we’re allocating cash to something and having (miserable) returns so clients think we’re managing their money… meaning that in the last few years I was just holding cash and stocks.

But things have changed considerably! The 3-month T-bill is now 5.5% and the 30-year is now at 4.28%. S&P 500 Earnings are now at 3.95% (or a 25 PE ratio)! Staying in bonds vs stocks is now a discussion.

Governments across Europe are begging banks to increase their interest rates on deposits.

Does this make any sense?

The government’s view is that banks should increase deposit interest rates since the central bank has increased its reference interest rate and banks are lending (in Europe) at Euribor + spread, so their interest rate margin (the difference between the interest rate at which banks lend and the rate they pay on deposits) has increased dramatically.

That represents a big part of a bank’s business that practically was dead for years and was replaced by charging fees on absolutely everything. (It may indicate that some banks will have big profits in the coming years, maybe I’ll do one post analysing that).

But from the banks’ point of view, since they don’t need more liquidity or cash, and since interest rates are increasing, they don’t foresee as much lending as before. Why should they start paying more on deposits if they don’t need to? That will damage their margin and hurt their profit.

So don’t expect much to come from that.

But the reality is that you don’t need to wait for those rates to increase so you can start losing less money to inflation, meaning, having some return.

We are now finally getting paid to hold cash, which theoretically is not cash, but it is similar since holding money in short-term government bonds has very low risk either in default or duration (interest rate risk), and you can exchange it for cash immediately or as fast as you can sell a stock.

I am personally holding a considerable amount of cash in those low duration, very low-risk bond ETFs.

Bonds are finally paying something. And we don’t need to invest in risky bonds (although corporate bonds are starting to have some interest).

Does all this sound complicated?

What is a bond? What is duration? What is an ETF? Is it risky? Why na ETF and not just buy the bond? Well, I believe it’s worth spending some time investing in learning finance basics. Just read other posts and you’ll understand that it’s neither complicated nor time-wasting. Financial literacy is a must if you want to get more money. You can’t just trust what I write, but you definitely need to understand what you are buying.

I can give you an example of what I’m holding.

There are many ETFs that hold short-term government bonds. Please do your due diligence. However, I am just mentioning things that I hold that can ease your task…

For USD, buy IB01,

iShares $ Treasury Bond 0-1yr UCITS ETF

Average Yield: 5.29% – Duration: 0.3.

The iShares $ Treasury Bond 0-1 yr UCITS ETF aims to track the investment results of an index composed of US Treasury government bonds denominated in US Dollars, with remaining maturities between zero and one year.

For EUR, buy Pictet – Short-Term Money Market EUR – I

and check the prospectus.

The Compartment mainly invests in short-term money market instruments that are issued by highly rated issuers and are either denominated in Euro (EUR) or systematically hedged to this currency (meaning investments have little or no exposure to currency risk).

Both don’t distribute dividends, so you don’t have to worry about reporting them in tax forms, and you’ll probably save on taxes by having accumulating ETFs, at least if you live in Europe.

I have to inform you that I don’t receive any compensation from those funds.

*there is no risk-free, however having short-term US bonds is classified as close to risk-free as it gets. Don’t forget that by buying an ETF you still have issuer risk and broker risk. Both are small for this kind of ETF and if you use a respectable Broker, but they still exist. Always understand the risks involved.

Financial Disclaimer: The information provided here is for educational and informational purposes only and should not be considered as financial advice. Investing in financial markets involves risk, and individuals should carefully consider their own financial situation and consult with a qualified financial advisor before making any investment decisions. The content provided does not guarantee any specific outcomes or returns. We do not assume any responsibility for actions taken based on the information provided. Always conduct thorough research and due diligence before making financial choices. Always conduct thorough research and due diligence before making financial choices.