HBD Savings: A Simple Exercise In Wealth Building
Over the last few decades, the fixed income market was destroyed around the world. As interest rates dropped, the returns that people got from these assets declined. Nevertheless, if you talk to people who are now in their 60s, they would tell you about the days when bonds were the primary choice for investing.
Why was this?
When we look at the return that was generated, it was one of those "no-brainers". Investing in bonds made a ton of sense. The fixed income market was a terrific vehicle for wealth building. As stated, this disappeared over the last few decades.
The appeal was in sharp contrast to the high-flying, emotionally driven atmosphere of the equities markets. Everyone is always looking for the 10X stock. That was the theme since the earliest days of the market.
Today, we see a similar story in cryptocurrency. People want the mooning while overlooking the potential that fixed income assets can generate. It is one of the reasons why Hive would be well served to expand into this arena.
One area that we are seeing the formation of this concept is with HBD savings. When one places his or her Hive Backed Dollar (HBD) into savings, the annual interest rate is 12%. Believe it or not, this is in line with Treasury Bonds in the early 1980s. In fact, the rate got close to 15% on the 30 year.
What this means is that the HBD savings is providing people with the ability to generate wealth over an extended period of time. e and rate of return are combined to compound our holdings. An entire generation of people do not really focus upon this due to the demise of the fixed income market.
Hopefully cryptocurrency will revive that idea. So far, we can see how this is shaping up on Hive.
US bonds are always attractive because of the risk associated with them. As compared to, say, junk bonds, the chance of default on US Treasuries is almost non-existent. In fact, since these bonds are considered pristine collateral, there is always a market for them. The US literally could engage in Ponzi-debt as a means of fulfilling the obligations.
HBD savings offers something similar. While the peg is still not ideal, it is getting closer. Since the token is resident at the base layer, as well as the "staking", there is no 3rd party counter-risk. One does not need to trust a company or application. This pulls the risk model down significantly.
We also have the fact that HBD is backed by $1.00 worth of HIVE. This means the other risk factor is if HIVE goes to zero. As long as that is avoided, we will see the backing remain in place.
Here we have an asset paying a superior return as compared to traditional assets while having very little risk associated with it. This is the epitome of the fixed income market.
12% Return Compounded
Does this mean we are on the pathway to enormous wealth building? The option is now present on Hive.
Everyone is looking for the 10X gains. The fixed income market guarantees any multiple return. It is only a matter of the risk profile one is willing to take along with the time invested. Obviously, a 10X return at 1% is going will require a lot of decades.
Fortunately, one receives 12% when HBD is placed into the savings account.
How does this look over a few decades?
Here is how it breaks down.
Year 1 1.12
Year 2 1.25
Year 3 1.40
Year 4 1.57
Year 5 1.75
Year 6 1.96
Year 7 2.20
Year 8 2.46
Year 9 2.76
Year 10 3.09
In a decade, we more than triple our money. That might not seem very impressive yet consider this is done with very little risk. Also, while a decade seems like a long time, keep in mind that 10 years ago, we were entering 2012. When you look back, it doesn't seem that long ago.
Things get more interesting the next 10 years.
Year 11 3.46
Year 12 3.87
Year 13 4.34
Year 14 4.86
Year 15 5.44
Year 16 6.09
Year 17 6.83
Year 18 7.65
Year 19 8.56
Year 20 9.59
A couple things happen by this time. The amount paid out in Year 20 is more than what we started with. In this example, the increase is greater than 1 HBD.
How many remember 9/11. It is hard to believe, but that was more than 20 years ago now.
Let us go another decade further.
Year 21 10.74
Year 22 12.03
Year 23 13.47
Year 24 15.09
Year 25 16.90
Year 26 18.92
Year 27 21.20
Year 28 23.74
Year 29 26.59
Year 30 29.78
It was a bit more than 30 years ago that we saw the collapse of the Soviet Union. Are you old enough to remember that?
After 30 years, each HBD put into savings would have compounded into 29.78 HBD using the linear method. We are actually underestimating what the total truly is.
Here we are using an annual compounding rate. With HBD savings, we are able to compound monthly. That means whatever interest is available, we can claim that each month. It is a fact that actually grows the numbers even more.
Using a compounding calculator, we see that each HBD in savings, at 12% over 30 years compounded monthly equates to 35.95 HBD.
In other words, here is a very low-risk 35X right before our eyes. Of course, this does not include any new contributions.
Expansion Of Hive Fixed Income
As we can see, this is a great foundation upon which to construct the Hive Fixed Income Market. There are so many other tools that can be built at the base layer to keep the risk low while offering amazing long-tern returns. This was one of the components behind the idea of Hive Bonds.
One of the next features that could be easily added is a time locked asset, creating a Hive Certificate of Deposit. Under this scenario, we see the opportunity for higher yields provided in exchange for the commitment of locking the HBD up for a long period of time. With the present payout rate for savings, which are mostly liquid, it would make sense to do a 20% return for a year commitment.
The compounding of our assets is what truly creates wealth. That is the key for many since it is something that eluded the masses under the present system. With interest rates so low, people are forced into riskier assets when searching for yield.
Here we see a situation where the yield is there, at least according to historic norms. This option, for those who understand the long-term concept, can really form a nice foundation in their asset building quest. It is not always smart to put all one's money into the highest flying assets out there. Naturally, it is great on the upside but awful when markets turn south.
Fixed income is a proven component to building a strong portfolio. With Hive, we are seeing the formation of such a market.
It is something people need to take advantage of and we should keep building upon.
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