Understanding Cash Will Make You a Happier Investor (Tyler)

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
Tyler
Executive Member
Executive Member
Posts: 1928
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by Tyler » Sat May 13, 2017 1:22 pm

barrett wrote:What do most folks on here do with cash if they only have, say, a few thousand bucks in cash in any given account. Put it in SHY? I don't like its .15% expense ratio but maybe I'm just being penny wise and pound foolish. Any other good options?
I personally like SCHO. Same 1-3 year maturity as SHY, but with an ER of only 0.06.
Mechanical engineer, history buff, treasure manager... totally not Ben Gates
User avatar
dualstow
Executive Member
Executive Member
Posts: 10756
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by dualstow » Sat May 13, 2017 2:54 pm

That (SCHO) is lower than the Vanguard Admiral treasury money market I mentioned, which has an ER of 0.09%.

I finally got off my duff and calculated my WAM, Weighted Average Maturity. My notes & bills come out to 1.2 years. Pretty much what I want. I never did carefully construct a ladder. It was more randomly throwing boxes of different sizes, eyeballed not measured, until they amounted to a ladder.
RIP Ron Cobb (Daily Check-in Thread).
barrett
Executive Member
Executive Member
Posts: 1529
Joined: Sat Jan 04, 2014 2:54 pm

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by barrett » Sat May 13, 2017 5:54 pm

OK, so help me out here. SCHO has a WAM of exactly two years. The two-year note now has a yield of 1.28%, yet the one-year annualized return I'm seeing for SCHO online is only .16%.
User avatar
dualstow
Executive Member
Executive Member
Posts: 10756
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by dualstow » Sat May 13, 2017 10:27 pm

Yield aside, I have 2- and 3-yr notes that are down. Theyre paying, but they're currently down. Maybe that has something to do with it.
RIP Ron Cobb (Daily Check-in Thread).
User avatar
sophie
Executive Member
Executive Member
Posts: 3864
Joined: Mon Apr 23, 2012 7:15 pm

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by sophie » Sun May 14, 2017 6:58 am

Barrett's right. Even at the lower interest rates of a year ago, the SCHO yield plus the ER should be close to 1%, which was the interest rate on the 2 year note one year ago. Something's fishy.

I share that dislike of funds with an ER greater than their yield, which is why I went with autorolling Treasuries. I haven't tried to go farther out than 6 months though. Even with 3 month treasuries I'm beating the interest rates of funds like SCHO, and there's practically no risk of having to sell at a loss.
barrett
Executive Member
Executive Member
Posts: 1529
Joined: Sat Jan 04, 2014 2:54 pm

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by barrett » Sun May 14, 2017 7:56 am

sophie wrote:Barrett's right. Even at the lower interest rates of a year ago, the SCHO yield plus the ER should be close to 1%, which was the interest rate on the 2 year note one year ago. Something's fishy.
I'd actually love to be wrong! Holding SCHO could simplify all our little IRA accounts. I do realize that there is some interest rate risk with a fund holding 1-3 year notes. I would just be surprised if the interest rate risk is knocking the fund's performance down so much.

There's a very strong possibility that I am just misreading the numbers for SCHO. Depending on what online source I use, I see different numbers for weighted average maturity and also for performance over recent one, three and five-year periods.
User avatar
dualstow
Executive Member
Executive Member
Posts: 10756
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by dualstow » Sun May 14, 2017 8:26 am

Could you guys explain how you're calculating it? I don't know how it's done.

I just know that I have bills and notes (up to 3-year notes), so I can see individually how they're doing.
For example, the $10,000 block ending in ~LF4 2017-Jun-29 (bought as a 26-week t-bill) is up $27.
The $10,000 block ending in ~R44, due 2019-MAY-15 (bought as a 3-year note) is down $84.
Yes, I'm going to get my money back, but when I add up everything (cost vs holding value, but not interest paid), it's down. Even though I artificially added a $100 gain from my i-Bonds.

So how do you calculate SCHO's return? Not the yield alone, but the return.
RIP Ron Cobb (Daily Check-in Thread).
User avatar
pugchief
Executive Member
Executive Member
Posts: 3714
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by pugchief » Sun May 14, 2017 8:30 am

It seems like there is an awful lot of principal fluctuation, no? Maybe a FDIC insured online savings account paying 1% is better?
Image
User avatar
Tyler
Executive Member
Executive Member
Posts: 1928
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by Tyler » Sun May 14, 2017 10:52 am

Looking at ETFreplay, the total return of SCHO is within a few basis points of SHY as one would expect (about 0.8% in 2016). Both lost a bit of money in the last half of 2016 as rates went up a tad.
Mechanical engineer, history buff, treasure manager... totally not Ben Gates
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2104
Joined: Fri May 21, 2010 4:16 pm

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by buddtholomew » Sun May 14, 2017 11:57 am

pugchief wrote:It seems like there is an awful lot of principal fluctuation, no? Maybe a FDIC insured online savings account paying 1% is better?
Image
Agree with FDIC insured savings account or CD's with EWP paying 2.25% (5-year).
User avatar
dualstow
Executive Member
Executive Member
Posts: 10756
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by dualstow » Sun May 14, 2017 11:59 am

I still don't understand how to calculate the return or what you think it should be for SCHO, but the bills and notes work out for me.
We talk about having iBonds for "deep cash", and I suppose the brand new 3-year-notes fall into the same category. Soon enough, they have just one year left until maturity, whereupon they calm down.

I keep some cash in the bank for bills, and some "shallow cash" composed of 26-wk T-Bills, but I've never had to sell them prematurely, if I recall correctly. If I do, I'll surely go for the T-Bills and leave the deeper cash alone.
RIP Ron Cobb (Daily Check-in Thread).
User avatar
sophie
Executive Member
Executive Member
Posts: 3864
Joined: Mon Apr 23, 2012 7:15 pm

Re: Understanding Cash Will Make You a Happier Investor (Tyler)

Post by sophie » Mon May 15, 2017 7:42 am

I went into ETFreplay to look into SCHO's total return. Here's a few numbers:

Last 12 months: total return 0.2%
Last 6 months: total return 0.1%
For calendar year 2016: 0.8%
Calendar year 2015: 0.4%

The 2016 figure is about right given the 1-2 year Treasury rates at the time. I guess the interest rate increase was enough to knock down returns, but I'm still surprised the it was that much, given the relatively modest increase in 1-3 year rates.

Savings account (Ally's rate is now 1.05%, whoo hoo) and CDs are great for taxable cash, but Barrett was asking about a retirement account. I'm still sticking with short range Treasuries. It's a great combo of minimal interest rate risk and returns comparable to the 1-3 year funds, for practically no work other than firing off the initial T bill order. If you then start buying longer duration bonds with accumulated cash, you'll end up with a self-sustaining ladder.

I wonder if anyone thought that autorolling Treasuries might spell the death of Treasury money market funds, with their high (0.4%+) ERs.
Post Reply