Treasury_Bills
00:00:00.000 | Hello everybody, it's Sam from financial samurai and in this episode I want to talk about how homeowners can live for free
00:00:07.860 | So in the previous episode I talked about safe havens
00:00:11.600 | specifically buying three-month Treasury bills because they're yielding
00:00:16.820 | 3.3 3.4 percent now and that's pretty darn good online savings accounts yielding a little bit over 2% APY
00:00:25.920 | Not bad if we're gonna go deeper into recession if you noticed
00:00:30.240 | Federal Express FedEx they reported disappointing results and removed their forward-looking guidance
00:00:36.760 | because
00:00:38.520 | They think we're gonna go into a deeper recession
00:00:41.520 | The CEO was quoted as saying he believes we're gonna go into a worldwide recession
00:00:46.400 | therefore focusing on your cash
00:00:49.320 | Your cash hoard and the return on your cash is probably really prudent right now
00:00:55.600 | Over the next 6 to 12 months. I'm gonna be building my cash hoard
00:00:59.680 | Especially since it's gonna be receiving a higher interest rate and here's something else
00:01:05.320 | I just realized as my mind is going through this protective mode right now, you know, I'm father
00:01:11.800 | I've got to look after my wife and two children and my parents if need be and I'm all thinking about okay capital preservation
00:01:19.640 | I've thought about capital preservation ever since I left in 2012
00:01:23.040 | My net worth allocation has never been too extreme
00:01:26.360 | Never focused more than 50% in one asset class and never really chased
00:01:31.200 | The super hot high flyers just a little bit 5 to 10 percent of my investments, but now you know, it's serious, right?
00:01:38.680 | We've had good times and we could go through rocky times for another one to two years
00:01:44.600 | It's very possible. So if you look at the yield curve right now, it is inverted
00:01:50.280 | It's inverted because the one year and two year
00:01:53.640 | Bond yields are higher than the 10-year bond yield. The 10-year bond yield is around
00:01:58.040 | 3.45%
00:02:00.680 | Maybe it tops out at 3 5 3 6. I'm not sure but I think that's about where it's gonna top out
00:02:05.840 | But the one year one year Treasury bill is at three point nine five percent
00:02:11.640 | It's almost at four percent and similar with the two-year. So it's an inversion and
00:02:16.640 | Inverted yield curves are a prescient indicator for a recession
00:02:21.200 | Almost four percent on a one-year Treasury bill is very attractive in my opinion
00:02:27.200 | over 90% of homeowners with mortgages have a mortgage interest rate below 5% and
00:02:33.840 | about
00:02:36.040 | 56% of homeowners with a mortgage rate have a mortgage rate below 4%
00:02:40.720 | We've all been able to refinance to under 4% for our mortgage over the past three years right in
00:02:47.220 | 2019
00:02:49.560 | 2020 2021
00:02:51.560 | We were bombarded with the message to refinance and I was telling y'all to refinance
00:02:56.300 | I refinanced and I got a new mortgage in 2020
00:02:59.300 | So for a 30-year fixed-rate mortgage
00:03:01.600 | You should have been able to get three percent or less and for a 7-1 arm or a 10-1 arm or a 5-1 arm
00:03:07.640 | You should have been able to get two point five percent or less
00:03:10.840 | So as a result, I think it's very prudent to buy one year Treasury bills at about four percent
00:03:18.120 | This is the perfect arbitrage to allow you to live for free now
00:03:23.080 | Obviously, you're not perfectly living for free if you don't have as much cash in those T bills
00:03:28.760 | Equal to your mortgage and other expenses other housing expenses, but as a personal finance enthusiast, it's all
00:03:36.560 | Incremental gains, right?
00:03:38.320 | So if you have that ten thousand twenty thousand fifty thousand hundred thousand dollar lying around if you don't need that money
00:03:44.400 | Four percent on a one-year T bill
00:03:46.960 | Sounds pretty good. Now if you look at Ford Futures
00:03:50.480 | inflation expectation rates
00:03:53.280 | It's expected to go drop down to under four percent three and a half percent three percent in one year's time
00:03:59.760 | But you don't really know right? Nobody really knows it does seem like inflation is peaking
00:04:04.760 | But for now what we do know is you can get a four percent
00:04:07.720 | Guaranteed yield over a one-year time period further if you buy Treasury bonds or Treasury bills
00:04:14.280 | There is no state income tax. So if you live in California, New Jersey, New York Hawaii states with high
00:04:21.240 | income tax rates
00:04:23.040 | Then you're getting an even better deal buying US Treasury bonds and bills as a financial samurai
00:04:29.840 | I always want you to be thinking about what are the positives of the current economic situation any
00:04:35.760 | Situation frankly, so the positive of an aggressive
00:04:39.600 | Fed rate hike policy is that the short end of the curve is going up and so we're going to be able to get higher
00:04:47.240 | Returns on our savings so we should absolutely take advantage while also being cognizant of
00:04:53.920 | Investing through a downturn, you know, I'm still nibbling on stocks when the S&P 500 is below
00:04:59.560 | 3900 who knows where it could bottom the most recent bottom was around the 3600 level
00:05:05.440 | It could go there. It definitely could with all these indicators showing, you know, things are slowing down
00:05:11.680 | It's definitely a possibility what you obviously don't want to do is spend way more money than your income growth
00:05:19.680 | Projections. I mean this is what we're seeing at every single tier of income in the United States people are spending out
00:05:26.240 | Of their minds and I guess it's good for corporate profits for now
00:05:31.780 | However, if you're not anticipating a slowdown and you're still spending like this
00:05:37.060 | It's gonna come back and bite you in the bum bum
00:05:39.760 | So if you want to buy Treasury bills or bonds
00:05:42.560 | you can allocate a portion of your cash to them through Treasury Direct or through your online brokerage account and
00:05:49.240 | Finally, let me share a really nice podcast listener review as I'm thinking about how to best spend my time in
00:05:56.000 | 2023 and these reviews are motivating and if there are no more reviews, it's okay
00:06:00.840 | I'm gonna spend my time elsewhere and that's all good
00:06:03.360 | Payton Kolo said Sam I wanted to let you know how much I enjoyed your new book by this not that
00:06:09.280 | I've read a lot of financial books over the last five years and so far your book relates to the middle class
00:06:15.800 | Better than anyone when I started reading the book. It was hard to put down
00:06:19.880 | I know you were not excited about writing a book, but I am glad you did. I highly recommend the podcast and book
00:06:26.660 | Thank You Peyton so much for your kind review of the podcast and book
00:06:31.100 | What really makes me happy is that Peyton says I relate to the middle class better than anyone
00:06:36.640 | Because this was not always the case
00:06:39.500 | In fact a lot of listeners and a lot of readers over the years said I was simply out of touch with reality
00:06:45.860 | Because here I was living in San Francisco where the median home price is over
00:06:49.780 | 1.8 million dollars and there are different types of incomes here where 22 year old kids
00:06:56.620 | College graduates are getting a hundred eighty thousand dollars all in right out of school
00:07:01.280 | But this is the reality that I've been living in from two years in New York City
00:07:05.860 | To now 20 years in San Francisco, and so I'm not gonna make things up
00:07:11.480 | I'm just sharing things the way they are and I've always hoped that people
00:07:15.740 | can recognize different realities that people experience in America and around the world and to just take it in and
00:07:22.940 | See if you can learn from different perspectives
00:07:25.980 | I think that's one of the funnest things about listening to a podcast
00:07:28.740 | Listening to people from different backgrounds and more during the two years of writing by this not that I was very
00:07:37.180 | intentional about writing for the middle class for the aspirational class for the people who cared
00:07:43.360 | Enough about their finances to read and listen about personal finance
00:07:47.620 | I wasn't just including stories about people making multiple six figures a year
00:07:51.720 | I was talking about people making $40,000 a year and close to the median household income of
00:07:57.180 | $75,000 a year. I wanted the book to be relatable and helpful to as many people as possible
00:08:03.980 | So thanks so much for listening reading leaving a great review
00:08:08.060 | They're all really helpful and motivating and thank you for letting me evolve and learn from all of you
00:08:14.240 | It really is an honor if you'd like to pick up a copy of by this not that you can go to financial samurai.com
00:08:21.160 | forward slash BT and
00:08:23.620 | T. Thanks so much everyone