Paid to Wait and Pounding the Table on Traveling When You're Young

Welcome back!

It’s time to talk about the historically most boring bonds out there - aka risk free bonds - U.S. treasuries. This is highly topical given the 10-year just briefly passed 5% today. With attractive short-term t-bill rates + longer dated paper widening out, it could be a great way to earn “risk free” steady passive income instead of reaching in a late-cycle equity market. This has been especially relevant as the equities market has cooled off. I’ll cover this in the first part of the newsletter.

In the second part of the newsletter, I’m going to pound the table on why I think you should travel and go to cool and new places at a younger age instead of putting it off. I’ve started mapping out my trips abroad in ‘24 and realized there’s no better time than now to share my thesis about the importance of exploring.

“Paid to Wait” investing.

This is how I’ve thought about a lot of personal account investing since May - after the market had ripped back up and was starting to feel frothy again. “Paid to Wait” in a nutshell means you’re being paid to chill in bonds/money market funds as opposed to taking outsized equity market risk in a late cycle environment. It feels like the window is starting to close on shorter term paper, but it’s still there right now and now people are now debating whether it’s time to lock in longer dated paper. Obviously, none of the below constitutes investment advice. In fact, me bringing this up probably is an “Inverse Cramer” move - watch treasuries start to fall on us lol.

I’m pretty sure “paid to wait” was coined by BowTiedBull btw.

Let’s look back at this year – the bear market/hard landing a lot of us thought was going to play out didn’t materialize as better than expected economic data, unemployment staying low, and the AI revolution led a significant drive higher in equities. The AI and Tech move arguably got out of hand, and the multiples we started seeing again did not represent a “higher interest rates for longer” environment. But here’s the great thing: If you made a decent chunk in the equity market this year, but are worried about where we go from here and if a soft landing and multiple expansion & solid earnings growth plays out, then you can “get paid to wait.” By that, I mean the yields on US treasuries are highly attractive “risk-free” paper (as long as you view US sovereign debt as risk-free). 6 month US treasuries are yielding over 5.5% currently, while longer dated treasuries have widened out significantly recently.

As of today, Treasuries briefly hit 5% for the first time since 2007 and Hedge Fund Manager Bill Ackman announced he was closing his short position on Treasuries. Ackman cited that there’s too much risk in the world to remain short bonds. Given significant geopolitical uncertainty and a potentially weaking U.S. consumer, the upside/downside tradeoff of shorting treasuries was no longer compelling for Bill.

So let’s talk about some of these higher-yielding products. You’re getting really healthy returns through 30-day yields, sites like Marcus, and through directly buying treasuries. Between those choices, I’ve more so been a fan of 6-month paper. Treasuries are subject to federal income taxes, but exempt from state and local taxes. Meanwhile interest you earn on money market accounts like Marcus are taxable as ordinary income. Plus, Marcus rates are ~4.4%, compared to 5.5% 6-month paper.

To be fair, earlier this year there were a lot of investors who were frankly too early on calling “peak rates”. They didn’t understand more hikes were coming and that the market was pricing in cuts in ‘24 too soon and by too much. That led to underperformance, but as we reach inflation <4% it seems like a pretty common place view to say “we’re done hiking” or “maybe there’s another 25bps, but it seems like we’re in a wait and see spot rn”.

Here is the Treasury Department’s daily update to the curve.

US treasuries during the month of October, 2023:

As reminder, and if you don’t have a Bloomberg Terminal, here is how you can see other key rates. The WSJ’s Bonds & Rates page is super helpful. Their opinion pieces are usually less so.

You’re now looking at treasuries in a ballpark that most of us have never seen in our investing careers. This begs the question how much risk you want to put on since you can start getting some solid returns beyond risk free bonds. As corporates trade wide of treasuries you can find some blue chip companies offering 6%-8% returns. Of course, people in HY and Loans right now are seeing a lot of decent paper with a 9% handle.

With that said, in a rising rate environment you don’t need to necessarily reach for yield (or risk) when you can get much better risk/return in higher quality and more liquid assets.

I have mentioned in prior Instagram stories how you can just chill in treasuries and collect a solid coupon. Not a lot of people responded and got it when I first started bringing it up, but among the people that did acknowledge it were dudes 35+ with a decent amount of $$. They saw and were taking advantage of the steady income they could get from buying short-term paper. For multi-millionaires, this was a no-brainer. $1mm in 6 month paper, then roll it another 6 months, and boom, you’ve earned a $55k salary.

Whether we’re heading for a hard landing, soft landing, or somewhere in between – the point is we’re seeing rates that a lot of us have never seen before. Yields are higher than we’re used to, and depending on where you shake out, can be pretty attractive from a risk tolerance standpoint. While most of the internet chase higher risk assets that they perceive as higher return, the “Paid to wait” strategy ain’t so bad if you don’t like the way the broader market is situated.

The question with “paid to wait” now is whether it’s time to lock in longer term paper: Go look at where treasuries are across the curve – the 6-month, 2-year, 5-year, 10-year, 20-year, and 30-year. If you think 1) we’re done or almost done with rate hikes, 2) the Fed will cut over the short/medium term and 3) treasuries are reaching their end of the cycle peak, then it may be time to start to lock in higher rates of return.

I generally think we’re near peak rates. It’s going to be very hard to truly go significantly further without things breaking. How much higher can auto loans and mortgages go? What about the difficulty for regional banks to match deposits with higher-earning loans across the right maturity profile without lending activity drying up?

The risks obviously are as follows: 1) Rates go even higher 2) You took poor duration risk and 3) Over time inflation makes the returns you set up less compelling.

Duration risk is key though, if you’re wrong and rates keep rising the impact is more severe for longer-dated notes. This chart from Bloomberg (note the far right column title should “300bp fall” not “300bp rise”) does a good job illustrating that there is duration risk if your bonds do continue to widen from here.

You can see in your money market accounts and Marcus accounts that those rates are only relevant so long as we’re in a high rate and increasing rate environment. Once rates start to fall, those yields start to shift and you’ll wish for the days you could’ve locked those rates in. Obviously, this may be a sign that the equity market is collapsing and it might be an opportunity to go buy solid, longer-term equities. There certainly may be an interesting window to pivot, but I don’t have a S&P 500 crystal ball.

Conclusion: I haven’t been very bonds focused in my personal account (PA), but we’re entering an environment where we might be nearing peak rates and the conclusion of the rate hikes within this economic cycle. While I’m trying to be cognizant of opportunities within the equity markets, it’s time for some people (depending on investment horizon and risk/return) to be more thoughtful about locking in some returns and thinking about how they want to mix their domestic equities, international equities, bonds, cash, etc. allocations.

A quick note before we get into Part II of the newsletter.

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Part II of the Newsletter

Making the case for maximizing traveling to cool and new places when you’re younger.

I’m in the midst of mapping out a few international trips for next year so I figured it’s a topical time to pound the table on traveling and doing new things.

This portion is largely thanks to the writing of Jack Raines. In this piece from mid-2022, Jack made the case of why it’s so important to travel more in your 20s. Jack spent 8 months out of the U.S. traveling around the world and loved it. He amusingly points out in this article how people will spend 22 years waiting for that moment of “freedom” (have graduated college and are ready to enter the real world) but will instead spend 40 years not really free. He also calls out how Steve Jobs, Jim Simons and Phil Knight (never heard of them) were three people who spent some time in their 20s traveling the world and certainly ended up fine. Obviously, not everyone is going to have 8 months early on to go travel, so I’m more so writing to everyone in a corporate seat that gets 2 to 4 weeks of time off a year. I also presume a bulk of people reading this are people living within their means, have some $$ saved up, and work in some high-powered finance (or adjacent) jobs.

It is truly wild from my lens when you talk to someone and realize they don’t really leave the state they grew up in, or they’ve only been on an airplane a few times. You realize quickly how lucky you are to be able to do something as simple as heading down to Miami for a weekend. We’re also (for American readers) very lucky to be born in the United States of America. The quality of life is significantly high – even if you’re disadvantaged, you can very easily have a place with a backyard and a nice TV. Many of us grew up in calm and relaxing suburbs. The mobility to increase your earnings power is there – all you need is enough grit and pedigree to get to NYC, or another city, and then work your way up. America is incredible. Obviously, this is also the case for parts of other countries so excuse my generalization.

There are some incredible treasures within this country – we have beautiful beaches and national parks all throughout the country. But even with our geographic diversity, the US doesn’t have everything – you really need to head abroad in order to see some cool things and experience different cultures. The opportunity to regularly head to other countries is something I deeply value.

The Essos of my travel rant is this though – 1) there are things you should do before you’re too old and 2) In general, I’ve liked to remove excuses from my mentality and recognize there are windows that I can’t let pass me by.

My case for traveling when you’re younger: 

On the first point, it’s obviously easier to travel, walk around for miles, and have more energy when you’re younger. The older you get the more tired you are and the less you can hang. That’s straightforward – so if you’re trying to go hiking or rock climbing or something more strenuous then obviously it makes sense to do this at a younger age. Additionally, doing red eyes and getting the most out of the 24 hours in a day gets harder later on. This doesn’t mean you need to hit something in your 20s, your 30s could make more sense – but you shouldn’t kid yourself on how difficult some things may be in your 50s, or 60s. When I was hiking the Path of the Gods (on the Amalfi Coast in Italy) there were so many older folks with skiing poles walking slow af and were in the way of me continuing on with my walk. The Amalfi Coast is notoriously a very steep and windy place, and those tourists probably would’ve enjoyed the hike and had more ease with it if they traveled there earlier in life.

On the second point, there’s always going to be an excuse why you can’t do something and there’s always people who regularly give into that excuse. You know those types. Where you try to get them to go to a bar, to a concert, a ball game, literally anything and you can’t get them to do anything but stay at home. There’s always an excuse to stay home. Don’t get me wrong – it’s nice even in your 20s to chill out on a Saturday or Friday night sometimes, but y’all know the regular excuse types. These excuses always snowball – here's a rundown on how it ends up looking:

1. I’m in College – I can’t travel or do spring break, I don’t have any money

2. I just graduated College – I can’t travel, I need to gain a good impression at work and earn some money

3. I just got promoted, I can’t travel, I have more responsibility now

4. I’m having kids, I’m not going to be able to travel

5. Okay the kids are finally out of the nest, now I can travel but now I’m like 55-60

That jump to point 4 will happen quicker than a lot of people think. Obviously, there’s a natural shift to couples trips and family trips over time, but the point is a lot of prime years to travel before were wasted due to constant excuses. It naturally makes sense you may be pickier about travel once you settle down, but letting your 20s and beyond pass you by for no real reason doesn’t make sense. On point 5, sure there may be some family trips along the way (imagine how much of a headache it is to travel with younger kids though) but that’s roughly a 20-25 year timeframe! So now you’re in your 50s, 60s, close to retirement and now you’re finally ready to travel? That all falls into the struggles of my first point. Go travel when you’re healthier, have more energy, and have fewer responsibilities.

I’m a firm believer that you can will a lot of what you want into existence. Naturally, a lot of us finance types worked very hard to get where we are and believe the world is our oyster. If you want to travel you can make it happen and not make up any imaginary excuses against doing so.

I don’t want to be one of those tourists who’s 50-60 years old and is seeing the Eiffel Tower for the first time – I want to check stuff like that off my list a lot earlier. Also ideally, you’re spending more time on the French coast than looking at the Eiffel Tower, but my point is I’d want to be doing things sooner rather than later.

There are other several other key benefits to traveling - and a lot of it comes from just getting out of your comfort zone and what you’re used to. While the United States is a geographically diverse area, there’s only so much architectural beauty and history that’s been built up. Think about how “old” the typical cool building in America vs. abroad - the spectacles of what was built 500+, 900+, 1,500+ years ago are so much more fascinating than a lot of what is in the U.S.

Traveling also feels like an adventure and gives you a lot of responsibility to figure out things out quickly in an environment you’re not used to. You can learn a lot about yourself through acting on your feet and getting out of your comfort zone. Additionally, learning about a new culture is a big driver for a lot of people to go travel. I’m bit too hardo of an American and set in my ways of “you need to work hard to have a nest egg and do nice things” to fully embrace more relaxed and easy going cultures, but I understand this aspect is a big driver of traveling for a lot of people. I’m more so of a 1) go on an adventure 2) go look at cool things & learn about the historical background of the cool things and 3) go chill and recharge type of traveler.

I will halt the breaks slightly though, it’s worth acknowledging and coming to terms with the fact that there are some countries and regions you should not be going to. It’s a bummer because there’s a lot of beauty on Earth, but there’s also plenty of countries and regions that are not friendly towards travelers and are highly dangerous. There’s a lot of countries where you don’t want to be stuck there as an American. For example, as recent geopolitical events have reminded us with Israel, that region is not somewhere you want to travel to anytime soon, even if you were due for a birthright trip.

You can view this travel map from the U.S. State Department as a barometer of where their travel warnings entail. For me personally, anything with 1) “Reconsider Travel” 2) “Reconsider Travel – Contains Areas with Higher Security Risk” and 3) “Do Not Travel” are off-limits for me. “Do Not Travel” spots include Russia, parts of Mexico, Venezuela, parts of Northern Africa, and parts of the Middle East. China is issued as “Reconsider Travel” and is not somewhere I plan on traveling to personally. The full list region by region from the U.S. State Department is here. 

With that disclaimer aside, you can’t just say “I won’t travel here there’s pick-pocketers!” or “It’s unsafe” about every city – if you google or YouTube every city you’ll find plenty of “DO NOT travel to ___” YouTube videos or articles on any state you’re looking at. Rome is an example of this, but it’s an amazing city (although Florence is better IMO). The dangers of NYC are also overexaggerated too.

What are some other reasons why I wrote this note on traveling? It’s also because frankly I keep seeing friends making the mistake of just sitting around and/or not trying new things. I get that there are different lifestyle choices people have, but it’s hard to advocate towards waiting for Friends who will spend thousands of dollars on bar tabs instead of a lifetime experience. Not to call out spending thousands of dollars on bar tabs as a bad thing, there’s plenty of ppl who do that and still can travel and go on vacations, I more so call it out as a crutch people use. The “I don’t have the money to explore outside my city” but blows thousands getting hammered 2-3 times a week – that’s what I’m calling out. What are you going to remember more? The once-in-a-lifetime trip somewhere beautiful or the 89th time you’ve gone to the same bar? There are a lot of people who as they get older come to regret the time and $ spent sitting in a packed bar instead of doing something more interesting or exciting.

The reality is, if you’ve worked in Finance or a similarly compensated role for even a few years you’re doing just fine. No one is saying you need to spend $10,000 a trip, but for many cool international places to travel to it’s really only the plane that’s expensive! The hotels, food, and even renting a car can be dirt cheap! Taking a long weekend trip to London from NYC is arguably cheaper than taking a long weekend trip from NYC to California.

Simultaneously, once you start seeing friends unable or unwilling to do things like they used to you start to wish you maximized things more before you got too old. Regardless, even if you aren’t able to get some of your friends onboard for trips like you used to, you can’t let people not wanting to do things slow you down. Even if you want to do a solo trip or a small-group trip, make sure you go travel and can do the things that you want to do.

I admire the people who say “F it, I really want to go to this place in Europe, I’m going to go do it, you can come if you want, but I’m set on doing this.” They don’t stop for anyone, they don’t make excuses – they go out and shape their own world and will what they want to do into existence.

Conclusion: I’ve found traveling to new places to be highly enriching. I’ve seen some beautiful things that make me appreciate nature and appreciate the work of those who built incredible monuments. Taking a seat and really soaking in the magnificence of what you’re looking at puts a smile on my face. Sitting on a beach, watching the sunrise, and floating in the ocean is like nirvana to me (I’m kinda like Kendall in that episode of Succession). It’s fulfilling, and exciting and also recharges me for work. I encourage you not to view traveling or vacation as something you push off until it’s too late. Go cross a lot of items off your bucket list when you’re young and able, and go find those experiences that you can’t put a price on, they’re almost certainly worth it.

That is all for this piece. Until next time

Best,

HYH