For point 1, I mention this in more detail in my response to GMcGowan—the 2.16% federal funds rate in 2019 was in fact a conservative estimate for bank yields. That can be seen by looking at my EA Forum article from 2019 which references bank savings yields of up to 2.4%. The accounts that offer a higher rate of interest (like the 2.4% accounts) do not fluctuate like bonds and have identical risk to other savings accounts because they’re all insured by the FDIC. They yield less in 2020, of course. I perform a more in-depth risk analysis of savings accounts and alternative options in my article from 2019.
Regarding point 2, if we include 2% estimated inflation, then bonds would return 1% and a low-interest charity savings account would return −2%. If we adjust your estimates upwards to include inflation like my 5.51% figure, so 7% for equities and 3% for bonds, we get 3.8% (likely higher, say 4%, with rebalancing). Would you say that’s within the same ballpark? Regardless, I think future returns are very difficult to forecast, even with good causal explanations. With those assumptions, it would make sense to allocate more of the portfolio to stocks instead.
Regarding point 3, yep, that’s a shortcoming of solely relying on Form 990 data. If we had the full data, I think it’s unlikely that would change the numbers by that much (say more than 50% higher or lower). I talk about this and other estimation issues in the “Estimation Methodology Caveats” section of the article.
Thanks for sharing your thoughts!
For point 1, I mention this in more detail in my response to GMcGowan—the 2.16% federal funds rate in 2019 was in fact a conservative estimate for bank yields. That can be seen by looking at my EA Forum article from 2019 which references bank savings yields of up to 2.4%. The accounts that offer a higher rate of interest (like the 2.4% accounts) do not fluctuate like bonds and have identical risk to other savings accounts because they’re all insured by the FDIC. They yield less in 2020, of course. I perform a more in-depth risk analysis of savings accounts and alternative options in my article from 2019.
Regarding point 2, if we include 2% estimated inflation, then bonds would return 1% and a low-interest charity savings account would return −2%. If we adjust your estimates upwards to include inflation like my 5.51% figure, so 7% for equities and 3% for bonds, we get 3.8% (likely higher, say 4%, with rebalancing). Would you say that’s within the same ballpark? Regardless, I think future returns are very difficult to forecast, even with good causal explanations. With those assumptions, it would make sense to allocate more of the portfolio to stocks instead.
Regarding point 3, yep, that’s a shortcoming of solely relying on Form 990 data. If we had the full data, I think it’s unlikely that would change the numbers by that much (say more than 50% higher or lower). I talk about this and other estimation issues in the “Estimation Methodology Caveats” section of the article.