How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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vnatale
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 12:14 am

jhogue wrote:
Wed Nov 27, 2019 2:48 pm
11/27/19
drumminj,

I am not picking your poison because I agree with Harry Browne and craigr that all financial risks are not created equal:

From CraigR’s FAQ:

"Q: Why a Treasury Money Market Fund and not something else with better yield?

A: Because you are not looking to take risk with your cash. Treasury Money Market Funds that are properly run are one of the most liquid investments you can own. There are no FDIC limits to worry about, no bank credit worthiness to worry about, and you will always be paid barring some extremely catastrophic event in the country. Chasing yield with your cash means you are taking on more risk and those risks can show up when you least expect (or want) them to."

The FDIC ran short of cash during the 2008-2009 financial crisis and had to be bailed out by Congress to the tune of $100 billion. That is a fact, not an opinion or a theory.

During that same time period, there was no interruption in the secondary market in T-bills.

Happy Thanksgiving to one and all.
The counter to the belief that having FDIC backed investment is as good as investing in some form of Treasury Bills.

Vinny
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Re: How do you invest the Cash portion?

Post by ochotona » Fri Apr 24, 2020 9:30 am

Federal Reserve scraps transfer limits on bank savings accounts
BY PETE SCHROEDER, REUTERS - 13 MINUTES AGO

WASHINGTON (Reuters) - The U.S. Federal Reserve announced Friday that banks can now allow account holders to make an unlimited number of withdrawals and transfers from their savings accounts.

The central bank updated its rules to scrap the six-per-month limit that had previously existed for such accounts. The Fed said the move would help ensure people can access their funds "at a time when financial events associated with the coronavirus pandemic have made such access more urgent."

The Fed said it removed the limit because a recent policy shift had rendered it unnecessary.

In March, the Fed scrapped its reserve requirements for bank accounts as part of a broader effort to keep funds flowing to businesses and households amid the pandemic. Previously, banks were required to hold a certain amount of reserves against funds in "transaction accounts," like checking accounts, that saw money frequently coming and going. Banks did not have to hold similar reserves against savings accounts, but were limited in how often money could be moved from them.

The Fed said that after it eliminated reserve requirements for all types of accounts, it was no longer necessary to treat savings accounts differently.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Jonathan Oatis)
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 10:54 am

drumminj wrote:
Wed Nov 27, 2019 9:08 pm
jhogue wrote:
Wed Nov 27, 2019 2:48 pm
11/27/19
drumminj,

I am not picking your poison because I agree with Harry Browne and craigr that all financial risks are not created equal:
That's fair, and to be clear I'm not trying to convince anyone.

I disagree though that there are no "FDIC limits to worry about". Your MM funds are held by a financial institution (in "street name", possibly even?) which may become insolvent, halt withdrawls, etc. You have insurance issues there, no? Asking sincerely, is this less risky than FDIC?

Treasuries held directly? Sure. Treasuries held on your behalf? Less so. Treasury MM? Also has risks.

Again, not trying to convince anyone to do what I do -- just trying to be clear about the risks here in the margins.
A good response. Representing a not often stated point of view.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:00 am

ochotona wrote:
Tue Dec 03, 2019 7:03 pm
I-Bonds cannot break the zero bound. This is big f deal. Retail depositors in Europe are now being charged to keep their money in the bank.
Another I-Bond proponent. They truly would be THE cash investment if only they did not have the unfortunate yearly limit on their purchases. For someone with a portfolio of any size and choosing to transform that present portfolio to classic Permanent Portfolio the limit on purchases leaves I-Bonds as being only a small to tiny portion of the cash investment, leaving one to decide where to invest the rest of the cash portion. In my case I'd go strictly Treasury Bills of one year or less maturities.

Vinny
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Re: How do you invest the Cash portion?

Post by Libertarian666 » Fri Apr 24, 2020 11:24 am

drumminj wrote:
Wed Nov 27, 2019 9:08 pm
jhogue wrote:
Wed Nov 27, 2019 2:48 pm
11/27/19
drumminj,

I am not picking your poison because I agree with Harry Browne and craigr that all financial risks are not created equal:
That's fair, and to be clear I'm not trying to convince anyone.

I disagree though that there are no "FDIC limits to worry about". Your MM funds are held by a financial institution (in "street name", possibly even?) which may become insolvent, halt withdrawls, etc. You have insurance issues there, no? Asking sincerely, is this less risky than FDIC?

Treasuries held directly? Sure. Treasuries held on your behalf? Less so. Treasury MM? Also has risks.

Again, not trying to convince anyone to do what I do -- just trying to be clear about the risks here in the margins.
Is the only way to Treasuries directly Treasury Direct?
Mine are held at Fidelity. I think that is reasonably safe.
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:39 am

jhogue wrote:
Fri Dec 06, 2019 3:27 pm
Vinny,

Financial safety is reinforced through diversity and liquidity. T-bills held in a brokerage account at Vanguard are safe enough for “normal” times because Vanguard is a big active player in the enormous world-wide secondary market for Treasurys. Unless there is a terrific disruption in this market your money will always be completely liquid. Nevertheless, you might eventually consider diversifying your holdings of Treasury –issued securities as follows:

1. Federal Reserve notes (ie., greenbacks yielding 0% interest) kept in a safe place in your home.

2. A TreasuryDirect account in your name.

3. Paper I-bonds with registered serial numbers purchased with your annual tax refund.

Any of these will diversify your holdings away from a 100% T-bill position in a brokerage account. But understand that each of these methods poses different risks from T-bills held in a brokerage account. That is the way risk works.
Good points!

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:40 am

drumminj wrote:
Fri Dec 06, 2019 9:56 pm
jhogue wrote:
Fri Dec 06, 2019 3:27 pm
T-bills held in a brokerage account at Vanguard are safe enough for “normal” times because Vanguard is a big active player in the enormous world-wide secondary market for Treasurys. Unless there is a terrific disruption in this market your money will always be completely liquid.
I don't mean to keep harping on the same thing, but it seems you're overlooking the aspect of relying on a third party here. Sure, the treasury market is liquid, but that doesn't mean that vanguard will be solvent. Presumably these treasuries are held in "street name", like all other instruments at a brokerage, and thus aren't in your direct possession and are at risk if there's an issue with the institution itself, which is where SIPC comes in. Is this not the case treasuries (vs stocks)?

"In normal times", sure, but if you're talking about FDIC and liquidity with a bank/MM account/CD, it seems you should be considering similar scenarios with your brokerage -- Vanguard or Fidelity or Schwab or wherever else. (I'll admit that bank receiverships are far more frequent than brokerage houses).

I agree with you on the tiers of possession and liquidity, and my intent here is just to suggest that bank accounts and CDs fall upon this same continuum, and in normal times where banks remain solvent, don't have drastically different characteristics from treasuries, aside from often paying a better rate. If I need liquidity in "normal" times, I can liquidate a treasury through my broker just as easily as I can break a CD (which I've done a few times, and takes no more than a day or two).

In "abnormal" times like the 2008 "crisis", I agree treasuries are the safer play.
And, more representing a certain point of view.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:41 am

mathjak107 wrote:
Sat Dec 07, 2019 3:12 am
FEW REALIZE THIS :

if you ever check your vanguard statement or fidelity they read :
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
" SIPC insurance provides protection for assets held by you in a Vanguard Brokerage account. Vanguard Brokerage Services is a division of Vanguard Marketing Corporation, which is a member of SIPC...

Vanguard mutual funds, including any Vanguard money market fund linked to your Vanguard Brokerage account, are not covered by SIPC insurance."
-------------------------------------------------------------------------------------------------------------------------------------------------
"If you buy mutual funds through a brokerage account, those funds are protected against theft by SIPC.

However, if you buy mutual funds directly from a mutual fund company, they are not protected by SIPC, "because no protection is necessary : . Each mutual fund is set up as a separate entity, apart from the company that manages the fund. "The employees at a mutual fund don't have direct access to the assets,All mutual fund assets by law must be held in a trust account at a custodian bank.

That is a special account, not part of the bank's assets. The bank can fail, but the trust accounts are not involved in any way shape or form in that failure ...

https://www.bogleheads.org/wiki/SIPC_pr ... tual_funds
And, important clarifications by mathjak.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:43 am

Kbg wrote:
Tue Dec 10, 2019 4:34 pm
Don’t forget, the govt can print money. So getting your money back is not really the issue. Far more likely problems are legal delays and in the ZA (new acronym for Zombie Apocalypse) inflationary devaluation.

To me for the first and most likely problem, treasury direct is a no brainer. Just you and your government, no middlemen of any kind.
A BIG vote for Treasury Direct.

VInny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:46 am

mathjak107 wrote:
Wed Dec 11, 2019 2:26 am
old school thinking used to say that bonds should go in retirement accounts . the fact is taking up valuable space in tax advantaged accounts at these low yields is a waste . michael kitces found that as little as a 2% dividend over the long term wipes out any tax advantage in a taxable account. fund turnover makes it worse .

as kitces points out

"Executive Summary
In an environment where generating portfolio alpha is difficult, strategies like managing assets on a household basis to take advantage of asset location opportunities to generate “tax alpha” are becoming more and more popular. The caveat, however, is that making effective asset location decisions is not easy, either.
For instance, while the traditional asset location strategy “rule of thumb” is that tax-inefficient bonds go into an IRA, while equities eligible for preferential tax rates go into a brokerage account, the reality is that for investors with long time horizons the optimal solution may be the opposite. Once stock dividends and portfolio turnover are considered, the ongoing “tax drag” of the portfolio can be so damaging to long-term returns that placing equities into an IRA may be more efficient, even though they are ultimately taxed at higher rates!
In fact, it turns out that almost any level of portfolio turnover will eventually tilt equities towards being held in IRAs given a long enough time horizon (and especially while today’s low interest rates result in almost no benefit for bonds to gain tax-deferred growth inside of retirement accounts). Which means in the end, good asset location decisions depend not only on returns and tax efficiency, but an investor’s time horizon as well!

https://www.kitces.com/blog/asset-locat ... e-horizon/
If one is using the Vanguard Total Stock Market fund as one's 25% equity investment and it has a yield of 2.15% then it would seem to qualify? The remaining question would be what you or he would consider to be "over the long term". What do you consider to be the time range to constitute being "over the long term"?

Vinny
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Re: How do you invest the Cash portion?

Post by mathjak107 » Mon Apr 27, 2020 2:54 am

Image


typical accumulation and retirement stages usually are looked at as 30 years .
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Re: How do you invest the Cash portion?

Post by ochotona » Mon May 11, 2020 8:41 pm

Ally Bank 1.25% on the savings accounts now...
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Re: How do you invest the Cash portion?

Post by Kriegsspiel » Mon May 11, 2020 8:45 pm

What are they doing that they can give you 1.25% interest
You there, Ephialtes. May you live forever.
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Re: How do you invest the Cash portion?

Post by ochotona » Tue May 12, 2020 4:47 am

Kriegsspiel wrote:
Mon May 11, 2020 8:45 pm
What are they doing that they can give you 1.25% interest
Subprime auto loans probably.
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Re: How do you invest the Cash portion?

Post by sophie » Tue May 12, 2020 7:51 am

WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.

T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.
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Re: How do you invest the Cash portion?

Post by Libertarian666 » Tue May 12, 2020 8:03 am

sophie wrote:
Tue May 12, 2020 7:51 am
WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.

T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.
I don't see any way that it won't get at least that bad.
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Re: How do you invest the Cash portion?

Post by Kriegsspiel » Tue May 12, 2020 6:48 pm

sophie wrote:
Tue May 12, 2020 7:51 am
WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.

T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.
I've been reading similar stuff.

But I can see why ocho is so blasé about it. Collect your higher interest rate, then if the bank goes under, you'll get your money anyways through the FDIC. It's almost like you only win if you DO go with the highest interest rate savings accounts. Unless FDIC fails, like because tons of people are unemployed because of a government lockdown, and they're drawing down their bank accounts... but I really don't know enough about it to do anything but speculate.
You there, Ephialtes. May you live forever.
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Re: How do you invest the Cash portion?

Post by Hal » Sun May 31, 2020 5:04 am

What are your thoughts on putting cash into senior floating rate bonds rather than unsecured bank deposits?
Eg: https://www.betashares.com.au/fund/aust ... e-bond-etf

Unfortunately there are no Australian Treasury note ETF's and while there is an FDIC equivalent, it is totally unfunded (ex-post). It is also at the discretion of the Minister if the insurance is to be activated.

All thoughts welcome.

ps: Some history https://www.theage.com.au/national/vict ... 5232x.html
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Re: How do you invest the Cash portion?

Post by mathjak107 » Sun May 31, 2020 6:09 am

Kriegsspiel wrote:
Tue May 12, 2020 6:48 pm
sophie wrote:
Tue May 12, 2020 7:51 am
WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.

T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.
I've been reading similar stuff.

But I can see why ocho is so blasé about it. Collect your higher interest rate, then if the bank goes under, you'll get your money anyways through the FDIC. It's almost like you only win if you DO go with the highest interest rate savings accounts. Unless FDIC fails, like because tons of people are unemployed because of a government lockdown, and they're drawing down their bank accounts... but I really don't know enough about it to do anything but speculate.
it should be money that you can wait for . in the even of failure you may have to wait to get paid .. it took more than 2 months to get our money out of a money market when it broke the buck and was locked. we did lose about 2.50% in that event .
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Re: How do you invest the Cash portion?

Post by jhogue » Sun May 31, 2020 12:10 pm

Right now, cash is starting to remind of all the complaints about gold.
But-- just like gold-- when you really need it, you want access to it right now and you want it in the safest form you can get.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: How do you invest the Cash portion?

Post by jalanlong » Sun Jul 05, 2020 9:21 pm

https://www.gsam.com/content/gsam/us/en ... r-etf.html

Right now I use this ETF for all of the cash in my PP. Anyone think that is a bad idea?
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Re: How do you invest the Cash portion?

Post by mathjak107 » Mon Jul 06, 2020 2:54 am

if you think rates will rise t-bills can be best . but if you think rates will fall , a t-bill etf like shv or very short term fund like shy etf is better , since they rise as rates fall more . why not split the cash portion .
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Aug 20, 2021 3:45 pm

ochotona wrote:
Tue Dec 03, 2019 7:03 pm

I-Bonds cannot break the zero bound. This is big f deal. Retail depositors in Europe are now being charged to keep their money in the bank.


In the light of our recent discussions regarding the advantages / disadvantages of iBond investing.....the above is an important one to keep in mind....
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: How do you invest the Cash portion?

Post by vnatale » Sun Aug 22, 2021 3:54 pm

tomfoolery wrote:
Sun Aug 22, 2021 3:43 pm

vnatale wrote:
Mon Oct 07, 2019 8:07 pm

As I just stated, if my belief that an income producing investment such as cash belongs in a retirement account then that eliminates any I bonds as Treasury Direct does not work with retirement accounts.

Since you are with both Vanguard and Fidelity and use do autoroll at Fidelity can you verify that Vanguard does not seem to offer the autoroll feature. When I talked to them a short while ago about the mechanics of buying bills and bonds they did not seem to bring up the autoroll feature. It seemed like it was all up to the investor to do it manually.

And, again, if I'm going by the pure prescription of owning cash from Tex's and Craig's book, which I believe to be 100% Treasury / one year then it seems the best options are Vanguard's US Treasury money market fund or buying various T-Bills which have maturities no longer than a year. In this area I am definitely prizing ultimate safety over any form of yield improvement. Therefore, that would seem to basically eliminate your first and third third, leaving only your middle third.





T-bills are definitely the way to go! The Treasury MMF has non-treasury obligations in it!


That is where I currently have all my Vanguard cash in...when I completed doing so in March 2020.

Since then the holdings have deteriorated with what they have now allowed the fund to hold.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: How do you invest the Cash portion?

Post by jhogue » Sun Aug 22, 2021 4:27 pm

tomfoolery wrote:
Sun Aug 22, 2021 3:43 pm
vnatale wrote:
Mon Oct 07, 2019 8:07 pm
As I just stated, if my belief that an income producing investment such as cash belongs in a retirement account then that eliminates any I bonds as Treasury Direct does not work with retirement accounts.

Since you are with both Vanguard and Fidelity and use do autoroll at Fidelity can you verify that Vanguard does not seem to offer the autoroll feature. When I talked to them a short while ago about the mechanics of buying bills and bonds they did not seem to bring up the autoroll feature. It seemed like it was all up to the investor to do it manually.

And, again, if I'm going by the pure prescription of owning cash from Tex's and Craig's book, which I believe to be 100% Treasury / one year then it seems the best options are Vanguard's US Treasury money market fund or buying various T-Bills which have maturities no longer than a year. In this area I am definitely prizing ultimate safety over any form of yield improvement. Therefore, that would seem to basically eliminate your first and third third, leaving only your middle third.


T-bills are definitely the way to go! The Treasury MMF has non-treasury obligations in it!
FDLXX, Fidelity's Treasury money market fund, does not have any non-treasury obligations.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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