The Corner

What the Heck Is MyRA?

Barack Obama apparently proposes to reinvent the savings bond. Does anybody know why savings bonds went out of fashion? Because they are a terrible way to save money.

The president promised that his MyRA (once he figured out how to say it) would combine a non-trivial rate of return with zero risk. Given that real interest rates on zero-risk propositions are generally right around zero of late, the only plausible way to get that done is with a subsidy. This sounds like a terrible idea.

Unless you have about $500 million or so, zero-risk investments are generally a bad idea, because returns are proportional to risk. (If there’s no risk, what are they paying you for, other than time?) Almost everybody, and certainly young people entering the work force (if they should be so lucky!), is better off with some significant amount of risk in his retirement portfolio, a well-diversified, long-term savings program being the most reliable path to a comfortable retirement. A zero-risk/decent-return instrument is a perpetual-motion machine.

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