Hello, YieldAlley readers! In this issue:

• The End of Easy Money: Why Your 2025 Cash Strategy Needs a Rethink

• U.S. Stocks Soar 25% in 2024

• What do people regret the most when they retire?

• And more!

NEWS

Standout Stories (Other 2024 Roundups!)

🚗 Tesla’s pain seems to be Uber’s gain (Sherwood)

🙅‍♂️ New Scams Target People Trying to Avoid Scams (Next Avenue)

🏖️ 3 Ways to Simplify Your Investment Portfolio for 2025 (Morningstar)

🤖 Waymo dominated U.S. robotaxi market in 2024 (CNBC)

☹️ What do people regret the most when they retire? (Yahoo Finance)

MARKET THOUGHTS

U.S. Stocks Soar 25% in 2024

• ECONOMY

  • Manufacturing in the Chicago region, a key industrial bellwether, plunged deeper into contraction territory as December's Purchasing Managers' Index fell to 36.9 from 40.2 - any reading below 50 signals shrinking activity. The steepest drop since May suggests factory managers are cutting orders and production amid uncertain demand. Yet broader economic resilience persists: weekly jobless claims hit an eight-month low of 211,000, while the Atlanta Fed trimmed its Q4 growth forecast to a still-healthy 2.6% from 3.1%, citing softer business investment.

• STOCKS

  • U.S. stocks capped their best two-year run since 1999, with the S&P 500 delivering consecutive annual returns of 25.2% in 2024 and 24.2% in 2023 despite December’s retreat. Tech dominance continued as the Nasdaq Composite rose 31.4% in 2024, marking its sixth yearly gain above 20% since 2017. The final trading week saw mixed performance, pressured by Tesla missing Q4 delivery estimates and Apple’s weakening iPhone sales in China, before a Friday rally lifted indexes off their lows.

• FIXED INCOME

  • Bond yields fell in thin holiday trading as investors positioned for 2025. Municipal debt strengthened on seasonal reinvestment flows and light new issuance ahead. Corporate bond activity centered on $15 billion of fresh investment-grade deals across 10 issuers, while high-yield showed modest gains despite equity weakness. The quiet period suggests markets are awaiting next week's jobs report for fresh direction on rates.

INCOME BUILDING

The End of Easy Money: Why Your 2025 Cash Strategy Needs a Rethink

The era of easy money is ending. After nearly two years of earning 5% or more on risk-free cash investments, investors face a new reality in 2025. Cash yields have already dropped to 4.3-4.4%, down significantly from their 5.5% peak in 2024. With $7 trillion currently sitting in cash – an all-time high – investors need to rethink their strategy.

The Cash Landscape of 2024: A Brief Look Back

Throughout most of 2024, parking money in cash was a no-brainer. Government money market funds consistently yielded around 5%, with providers like Vanguard often leading the pack. Six-month brokered CDs and Treasury bills frequently pushed above 5.5%, offering these exceptional yields with perfect liquidity and essentially no risk.

This comfortable situation began changing dramatically in September 2024, when the Federal Reserve implemented its first rate cut since 2022 – a substantial 50 basis points. Two more 25-point cuts followed in November and December, signaling the end of the high-yield cash era.

The 2025 Interest Rate Reality

The outlook for 2025 presents a clear shift. Morningstar’s economics team forecasts interest rates will drop to around 3% by year-end. This projection stems from strong economic fundamentals – unemployment remains low at around 4%, and GDP continues growing at a healthy 3% annual rate. The Fed’s fight against inflation appears largely won, removing the need for higher rates.

For cash investors, this means yields will likely continue declining. Holding excessive cash positions in 2025 creates a significant opportunity cost, particularly when considering the range of fixed-income alternatives currently available.

Government and Agency Bond Opportunities

The December 2024 Treasury auction provides a compelling example of current opportunities. While short-term T-bill rates remained flat after the Fed's rate cut, longer-dated bonds saw yields rise significantly. The new 20-year Treasury bond auctioned at 4.625%, with yields reaching as high as 4.686% – the highest since April 2024.

Even more attractive options exist in agency bonds. Federal Home Loan Banks currently offers several notable choices:

• A 30-year bond maturing in 2054 with a 6.125% coupon (callable in March 2025)

• A 20-year bond maturing in 2044 with a 6% coupon (callable in March 2025)

• A 20-year bond maturing in 2044 with a 5.375% coupon (callable in December 2027)

• A 25-year bond maturing in 2049 with a 5.24% coupon (callable in December 2029)

These agency bonds offer an important lesson in the trade-off between yield and call protection. The highest-yielding bonds (6.125% and 6%) come with near-term call dates, while bonds with longer call protection offer lower yields. Investors must decide whether they prefer higher short-term yields with reinvestment risk or lower yields with more certainty.

When evaluating callable bonds, consider two key scenarios: the bond being called at the first opportunity or holding it to maturity. For example, with the 6.125% 30-year bond, the worst case provides just three months of high-yield payments before a potential call, while the best case locks in that attractive rate for three decades.

The Total Return Advantage

Unlike cash investments, longer-term bonds offer two potential sources of return: interest payments and price appreciation. As interest rates decline, existing bonds with higher coupons become more valuable, potentially providing capital gains on top of their yield. This total return potential makes longer-term government and agency bonds particularly attractive in the current environment.

Looking Ahead

The message for 2025 is clear: while maintaining appropriate liquidity for near-term needs remains important, investors should carefully evaluate opportunities beyond cash. With rates expected to decline throughout the year, today's government and agency bond yields offer a compelling combination of safety and return potential. The key is finding the right balance between yield, call protection, and duration for your specific situation.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.15%

• SPAXX (Fidelity Government Money Market Fund): 4.12%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.28%

• VMFXX (Federal Money Market Fund): 4.35%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.19%

• E*Trade: 4.20%

• Fidelity: 4.20%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.20%

ETFs (30-Day Yields)

• SGOV (iShares 0-3 Month Treasury Bond ETF): 4.40%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.38%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.48%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.36%

BONUSES

Brokerage, Bank and Credit Card Bonuses

Brokerage Bonuses

• E*Trade (still active): Up to $6,000 in bonuses for deposits made within 60 days of enrollment. Offer here.

  • Use promo code OFFER24.

    • $1,000+ will receive $50

    • $5,000-$19,999 will receive $150

    • $20,000-$49,999 will receive $200

• tastytrade (still active): Offering up to $5,000 in bonuses. Lower deposit bonuses are attractive, with a $100 bonus for a deposit of $5,000 (2% return). Offer here.

• Robinhood (still active): Offering a 1% bonus for transferring any table brokerage holdings. No maximum, but deposits must be held for two years after account opening. Offer here.

Bank Bonuses

• Capital One (new) — Earn a $300 bonus when you open a new checking account and use promo code OFFER300 and set up and receive at least 2 direct deposits, each of $500 or more, within 75 days of account opening. Offer here.

  • Availability: Nationwide

  • Soft credit inquiry

Credit Card Bonuses

• Chase Ink Preferred (active) — Get 120,000 Ultimate Rewards bonus points when you spend $8,000 in the first three months after account opening. Offer here.

• American Express Hilton Surpass Card (active) — 150,000 points Hilton Honors points after spending $2,000 in 3 months. Get an additional 50,000 points after spending a total of $10,000 within the first 6 months. Offer here.

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