ETF options for the cash component

Discussion of the Cash portion of the Permanent Portfolio

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HBFan
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ETF options for the cash component

Post by HBFan » Mon Apr 26, 2010 9:38 am

What are some good ETF options for the cash component within an IRA?
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MediumTex
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Re: ETF options for the cash component

Post by MediumTex » Mon Apr 26, 2010 10:25 am

SHY and SHV
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
HBFan
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Re: ETF options for the cash component

Post by HBFan » Mon Apr 26, 2010 10:56 am

I am currently using SHY.  Is there any advantage to using one over the other?
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MediumTex
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Re: ETF options for the cash component

Post by MediumTex » Mon Apr 26, 2010 10:59 am

One just gives you a little longer treasury exposure and more sensitivity to interest rates. 
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craigr
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Re: ETF options for the cash component

Post by craigr » Mon Apr 26, 2010 11:01 am

SHV is a very short term Treasury fund from iShares. Duration is essentially the same as a Treasury Money Market Fund and most closely matches what Harry Browne advocated for the Permanent Portfolio.

SHY is a 1-3 year duration Treasury fund from iShares. This fund has slightly more interest rate sensitivity to the SHV fund but has a higher yield.

My general advice is for cash you'll need in the next 1 year or so you should park it in the Treasury Money Market fund or equivalent. After that, if you feel you don't need the cash and can stomach a little more volatility, then put the rest in SHY for the historically higher yields and small additional interest rate risk.

If you don't need the money for a while because you have a good emergency stash outside your IRA for instance then SHY may be worth doing. It's a personal decision.

But keep in mind the original cash recommendation by Browne is still completely valid. Going slightly longer duration on the bond fund was the only modification I found to the portfolio that seemed to add a reasonable extra return with virtually no additional risk. The past does not predict the future of course, but it's a relatively low-risk gamble.
Last edited by craigr on Mon Apr 26, 2010 11:02 am, edited 1 time in total.
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Re: ETF options for the cash component

Post by julian » Sat Jul 31, 2010 10:11 am

What is everyones feeling about SHY with the 2 year at an all time low. Are you concerned that the downside risk at this point may be too great if and when short term rates rise?
jiminnc

Re: ETF options for the cash component

Post by jiminnc » Fri Oct 15, 2010 6:17 pm

julian wrote: What is everyones feeling about SHY with the 2 year at an all time low. Are you concerned that the downside risk at this point may be too great if and when short term rates rise?
Hi all. This is my first post, but read the entire Bogleheads PP thread and been a longtime investor.

This question shows the futility of trying to predict rates and outcomes. Almost 3 months later and this fund is nicely higher and we have 3 interest payments to boot. If anything shows how the PP works this should be it!

Thanks for all the wisdom on this forum!

Jim
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Re: ETF options for the cash component

Post by bdahl01 » Tue Oct 19, 2010 8:44 pm

BSV?
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