Harlem said:
VOO isn’t always perfect.
It depends on how the S&P 500 performs.
This is a simple decision. If you need the money soon, then savings makes sense. If you don’t, then consider the risk of VOO.
Try showing her the numbers using an investment calculator like this one. Compare how much you’d have in 25 years with a savings account versus VOO. If she still doesn’t get it, then it might be harder to convince her.
@Blaine
And don’t forget to mention tax advantages of 401ks, HSAs, and Roth IRAs. HYSA is fully taxed.
VOO relies heavily on tech stocks. While it’s not guaranteed, over 23 years, someone estimated that you’d see a 2.31X return.
With your long timeline, VOO or a similar index will likely outperform a savings account. The market may fluctuate, but it should go up over time. Plus, if you’re taking money out incrementally, any downturns won’t be as painful.
With a savings account, your 4.5% is likely compounded monthly, which isn’t much after a year. But with VOO, you could see 7-10% growth by the end of the year.
From 1957 to 2023, the S&P 500 has averaged a return of 10.26%. How does that compare to 4.5%?
Show your wife the 10-year average return of VOO. It’s a lot higher than 4.5%.
VOO is where I put money I don’t need immediately. My 4.5% savings account is for emergency funds. With my savings, I know exactly what I’m getting, but with VOO, it’s riskier. The only real risk with savings is inflation.
Here’s a thought: if you have $100k in an HYSA, you’ll get $4,500 (after taxes, maybe $3,000). But with VOO, if it grows 4.5%, that’s $4,680. Your profits will compound faster with VOO since it’s not taxed yearly.
VOO or VTI will outperform any savings account over 25 years.
Do you have an emergency fund? If not, maybe get that sorted first. Having an emergency fund in savings will give your wife peace of mind. Then, you can invest later. It might be a better choice.
The real yield on a HYSA is almost nothing. Your 4.5% is taxed as income and after taxes, it’s barely positive or even negative after inflation, depending on your situation. You’re balancing guaranteed inflation against market risk.
Don’t believe everything you read. Make your own decision. The market is heading into a period of volatility.
You can add some risk to your savings account but keep it below the risk level of VOO. Something like VTV + VDC (Value + Consumer Defensive) could work well. It’s less volatile than tech stocks but still gives decent returns. VOO is actually lower risk for me than my usual strategies, but everyone has different tolerances.
First, explain the rule of 72 to her. It shows how long it takes for money to double based on interest. Then, compare HYSA rates with market index funds. You can show her the difference in expected returns over 25 years.