Interest rates = financial gravity

My grandfather was a great engine mechanic. He was less great at opening doors or windows when testing his engines. I'd try to learn about the gaskets and pistons from him, peering through the blue haze of exhaust, conscious that carbon monoxide was pooling around my knees. Eventually I'd make a break for it, running to open the garage doors, making a play for optionality so we could both repair things another day.

It didn't matter if the engine sputtered a little, or hummed in perfect form, if the oxygen had been chased from the room.

In investing, you have to put appropriate weight on the big, influential variables. One of those variables is interest rates. Warren Buffett recently used an excellent analogy when he described interest rates as "financial gravity." If interest rates, like gravity, are high, they pull the value of other assets down. If interest rates, like gravity, are low, other values float up (and away sometimes).

The risk-free rate defines the baseline for investing. If you are going to get paid X without taking risk, something that contains risk needs to return X+B for it to attract capital. The more risk, the larger B has to be.

Here is the daily update to the yield of various U.S. Treasuries bonds:

On Tuesday, November 13, 1990, the oldest known web page was constructed. On that same day, U.S. Treasury yields looked this this, matching columns with the graph above:

Relative to previous decades, you can see that today gravity has been removed from the financial system. Gravity, like oxygen, is not a small variable. Because of its, shall we say, gravitas, much of the financial system has inflated upward.

Much, but not all. Returns tied directly to this rate are not inflating. For example, banking deposits. On top of the low rates, American banks are swimming in money as the government floods the system. This has led to an explosion in banking deposits:

With cash deposits just below the value of the entire American GDP, banks have no incentive to pay more interest. This impacts a wide swath of Americans who use banks to save.

To invest well in today's world, you have to accept that a major variable operates differently than it did 30 years ago. That acceptance, that realization, will keep you out of the blue haze.

Dan Cunningham

1. Here is the web's oldest page, If you are curious.
2. Commercial bank deposit source: Federal Reserve Bank of St. Louis
3. Treasury daily yield curve rates

Return to Articles
How We Are Different
Low-fee index funds. Transparent & fiduciary financial advisors.
Local Financial Advisor
We are in your community. We are local.
Investment Management
We tailor to each client. Index funds at the core.
Index Funds
Broad market exposure, low expense.
Dan's Corner
Meaningful musings from our founder.
Your best interests are our priority.
Low Fees
Our fees are among the lowest in the nation.
Financial Planner
Financial advisor optimizes your financial picture.
U.S. Treasury Bonds
Use Treasury Bonds to reduce risk.
Book Recommendations
Here are some of our favorites.
What is inflation, and what cuases inflation.
When Should I Invest?
Life transitions = important financial decisions.
Retirement: 401k and More
Retiring? Plan the future you want.
IRA Rollovers
401k Rollovers. IRA Rollovers
Active vs. Passive Investing
We believe there is a winner in this debate.
The Investment Process
How we work: low-cost index funds, personalized attention.
Simplicity is the ultimate sophistication.
Investing: What to Focus On
Low-fee index funds. fee-only advisor.
Switching Financial Advisors
Can be uncomfortable, but an important step.
Advisor Recruiting
We attract top-tier talent. Not your usual firm.
Basic Investing
Let's start with Investing 101.
Understanding Your Financial Statement
Let's break it down to basics.
Taxes on Investments
What causes taxes within your investments?
Behavioral Economics
The less emotion, the better.
Timing the Market in 2020
2020 - a case study in the futility of market timing.
How Financial Firms Bill
Fee-based vs. fee-only, and lots more.
Who Supports Indexing?
Bogle, Swensen, Buffett, and others.
One click to see our fees.
Mutual Funds vs ETFs
Clarifying the difference.
Does Stock Picking Work?
The research says no.
Countering Arguments Against Index Funds
What happens in a down market?
Lots of fees, little clarity.
How Do Mutual Funds Work?
Invest in the basket.
How to Relieve Financial Stress
New client? anxiety is normal.
Financial Terms Glossary
Common investment terms you should know.
Firm Comparison
One Day In July vs the competition.
Retired Investing
Retiring? Let us help.
Accounts We Manage
We manage a wide range of investment account types.
High Net Worth Investors
Preserve and grow your wealth.
Investing an Inheritance
Prioritizing and planning for the future.
Frequently Asked Questions
Good questions, real answers.
Female Investors
Your voice needs to be heard. We are listening.
For the Business Owner
Choosing what's best for your business.
Environmental Investing
Carbon intensity, fossil fuels.




United States



401k Plans



Account Types


Cash Flows

Low Fees


Dedicated Advisor


Advisors: Join Us


Articles on Investing

About the Secure Act

Quarterly Booklets


Vermont Investment Management

Vermont Retirement Planning

Vermont Wealth Management

Vermont Financial Advisors

Investment Tools

In the Media

Shelburne, VT Financial Advisor

Frank Koster | Josh Kruk | Keith McCarthy

5247 Shelburne Rd, Suite #101

Shelburne, VT 05482

(802) 777-9768

Stowe, VT Finanical Advisor

Available for meetings in Stowe.

Peter Egolf

(802) 999-2321

Burlington, VT Financial Advisor

Hans Smith | Katie Muttitt

Nancy Westbrook | Peter Egolf

77 College Street #3A

Burlington, VT 05401

(802) 503-8280

Darien, CT Financial Advisor

Available for meetings in Darien.

Keith McCarthy

(203) 554-9466

v 2.1.4 | © One Day In July LLC. All Rights Reserved.