My readers thanked me for inspiring them to earn higher returns on their cash; The biggest no-brainer I've ever seen; Schwab's stock has underperformed; Charity poker tournament tonight

September 26, 2024

1) The only thing I love more than getting an e-mail from a reader telling me that I helped them make money is hearing that in person...

That happened yesterday, not once but twice, at the annual Porter & Co. conference. (Porter & Co. is a boutique investing-research firm launched by Stansberry Research founder Porter Stansberry and it's a separate entity from our company.)

First, Ron D. from Idaho came up and said:

Whitney, I just want to shake your hand. Your articles back in April about how Schwab was only paying you a tiny amount of interest, which led you to switch your accounts to Fidelity to get a 10 times higher rate, led me to look at my accounts, and I discovered they were doing to the same to me, so I switched as well. And I've been telling all of my friends to do the same.

And as he replied when I asked him if it was easy to make the switch:

It only took a few minutes. But, like you, my Schwab rep called me up when he saw my transfer and offered to switch my money into an account paying a market interest rate, plus he offered me $350, but I wasn't interested.

I asked if I could take a picture and share it with my readers – here we are:

A little later, I sat down for dinner next to Terri and Tim G. from Tennessee. They have a great story: They're both doctors – he's a surgeon and she's an anesthesiologist – and they met in the operating room while they were both at medical school at Case Western Reserve in Ohio.

Like Ron, they thanked me for inspiring them to switch their accounts from Charles Schwab (SCHW) to Fidelity. They added:

Every month when we get our statements, we're so happy to see that we've earned a lot of interest. And we love our account rep at Fidelity – we're really happy with their service.

I asked if I could take a picture with them and share their story with my readers – as I told them, I'll bet a lot of folks are still keeping too much cash in checking accounts, bank savings accounts, or at Schwab earning close to nothing... so I wanted to write about this again.

They said sure, so here we are:

2) I'm going to keep pounding the table on this topic because it's the biggest no-brainer I've ever seen...

It's free money, it's easy to do, and – depending on how much you're keeping in cash – it's big money.

Now, please keep in mind that we here at Stansberry do not recommend or endorse any brokers, dealers, or investment advisers. We aren't affiliated with any brokerage and don't receive any compensation for mentioning a particular broker.

Today, as I've done in my previous e-mails about this topic, I'm sharing my personal experiences (and those of my readers).

Remember that you alone have to make the ultimate decision of which firm to use for brokerage services. That means choosing a brokerage firm that best meets your needs.

If you missed them, here are the four articles I wrote in April with all of the details about the switch:

In my first e-mail, I shared my story:

I'm sitting on a significant amount of cash through various retirement accounts at Charles Schwab.

I had always assumed that I was earning a market interest rate because these are brokerage accounts... But yesterday, the thought occurred to me, "I wonder if Schwab is screwing me over in the same way banks are screwing their customers who are holding cash in their savings accounts?"

So I went to Schwab's website and searched for the answer.

I couldn't find it under Frequently Asked Questions, so I typed "What interest rate am I earning on my cash?" in the search bar. Nothing came up.

So I tried Google – no luck there either. Finally, I called Schwab's 800 number and got an answer from a customer-service representative: I was earning a piddly 0.5% interest!

The rep showed me how, in a few quick steps on Schwab's app or website, I could transfer the cash to a range of options: U.S. Treasurys, munis, certificates of deposit, corporate bonds, and money-market funds, all of which were yielding around 5% – or 10 times what I was earning! So I immediately did so.

As I said, don't make the same mistake I did:

This is absolutely free money – and it's significant.

Let's say you have $10,000 in cash – the difference between 0.5% and 5% interest in a year is $450!

In my second e-mail, my readers shared their experiences and recommended Fidelity and Vanguard.

In my third e-mail, I wrote about my conversation with my Schwab broker and responded to a reader, John W., who wrote: "YOU screwed up and YOU are to blame" and added:

Charlie Munger would be very disappointed in your Schwab epistle. Like Charlie use to say, "Get over it. Don't feel sorry for yourself or have anger at your own stupidity or for things you can't control in life."

As I replied publicly in that e-mail:

John, I knew Munger... and there's no question he would support what I wrote.

One of the big reasons he loved Costco Wholesale (COST) so much that he served on its board is that, unlike nearly every other retailer, it always put its customers' best interests first.

And as I said earlier, when I opened up a Fidelity account to switch from Schwab, the process required me to select one of two options for my cash: a money-market fund yielding 4.95% or an alternative yielding 2.69%.

I didn't even have the option to get a piddly 0.5% on my cash.

That's what a good company does – it looks out for the best interests of its customers instead of trying to exploit their inattention/ignorance.

And in my fourth e-mail, I shared readers' thoughts on the advantages and disadvantages of Fidelity versus Vanguard and concluded:

Based on everything I've read, I don't see a clear winner between Vanguard and Fidelity. Vanguard might have the edge if you're a long-term, buy-and-hold investor who wants low fees and the highest interest rate on your cash...

But if you want a higher level of service, are trading a lot, and/or want to buy things like options and bitcoin (all bad ideas for most investors, in my opinion!), then Fidelity might get the nod.

3) In my second e-mail on April 19, I also noted that one of my expert contacts in the banking sector was short Schwab:

My banking-expert friend, whom I quoted extensively in many e-mails in early February (archive here), thinks that what Schwab is doing is likely to catch up with it... which is one of the reasons his fund is short SCHW.

He had sent me a detailed e-mail with his thoughts, which he kindly gave me permission to share with my readers. As my friend said back then:

I saw your write-up on SCHW today and thought I'd pass along a few comments as I think the stock is incredibly overvalued – and one of the primary reasons is exactly the dynamic that you pointed out. Great job exposing this topic!

Schwab has $269.5 billion of deposits with an average cost of only 1.35%! I am dumbfounded at the fact they have kept the cost of these deposits so low given their customers should be of an investor mindset, and even if a customer is primarily trading stocks they should still be focused on what their cash is earning.

As you point out, I've heard from others that it isn't so clear to see or know what your cash is earning (or not earning in this case!). My sister-in-law was getting hosed on a decent cash balance and said she couldn't find the rate anywhere, so she eventually called to have her cash moved into a money market but, like you, it sat in their low-yielding product for way too long.

And as he continued:

Now that we are in a "higher-for-longer" environment, it is just a matter of time before those deposit costs move meaningfully higher, particularly as more people like you start realizing you've been taken advantage of. The average cost of deposits in the banking industry is likely going to be near 2.5% after all the Q1 reports are filed, and I would say the banking industry should have a lower cost of deposits than Schwab given traditional banks have more non-interest bearing/transaction deposits.

To put this into perspective, Schwab – the entire company – is expected to earn around $6.2 billion in 2024. The management is very promotional and acts like their cost of deposits could potentially decline if there are rate cuts, which I strongly disagree with. You can easily do the math... if their cost of deposits only goes up by only 1%, that is a pre-tax cost of $2.7 billion! (And if the higher-for-longer environment persists for several years, it wouldn't surprise me to see the Schwab deposits move materially higher than a 1% increase.)

Even if SCHW can achieve these earnings estimates, the stock is trading at over 21 times earnings. And analysts are expecting earnings to grow 28% in 2025 to $4.37/share. I really struggle to see how they can grow earnings at all amidst this dynamic.

In sharing this, I wasn't encouraging my readers to run out and short Schwab's stock...

I've said too many times to count that 99% of investors will be better off if they never engage in short selling – it's just too hard and too dangerous.

But I regularly warn my readers about risky stocks to avoid – and this was a good one... As you can see in this chart, in the five months since then, SCHW is down roughly 13% while the S&P 500 Index is up about 15%:

4) If you're in New York City this evening, please join me at the 14th annual Take 'Em to School Charity Poker Tournament, which starts at 6 p.m. at Gotham Hall, 1356 Broadway.

For the sake of disclosure, I'll note that this isn't a Stansberry event. It benefits Education Reform Now ("ERN"), a wonderful nonprofit organization I co-founded two decades ago that is committed to ensuring that all children have access to a high-quality public education, regardless of race, gender, geography, or socioeconomic status.

It's a first-class event featuring numerous athletes and celebrities, poker players battling for fabulous prizes, and cocktail guests enjoying great food, a variety of casino games, and entertainment. (You can see a highlight video from last year's event right here.)

It's a lot of fun and, for any young person in – or looking to get into – New York's finance community, there's no better networking event. There are hedge-fund titans at nearly every table.

Poker tickets are pricey at $3,000, but cocktail tickets are only $250. You can buy a ticket at the door or on the website here.

If you come, be sure to say hi!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.