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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How do you invest the Cash portion?

Post by vnatale » Thu Jul 04, 2019 3:05 pm

I am ready to fully embrace The Permanent Portfolio as described in Craig Rowland and J.M. Lawson's The Permanent Portfolio book.

I am going for Level 4 and want to invest in the way that the book proscribes. I am not looking for any enhancements to what the book proscribes.

I was planning to use these four Vanguard / Fidelity funds for the Stock and Cash portions:

Vanguard Total Stock Market
Fidelity Total Stock Market
Vanguard Treasury Money Market
Fidelity® Treasury Only Money Market Fund

Again, I'm not looking for some other ways that enhance results of the Permanent Portfolio as proscribed by the book. However, the book came out in 2012, which means it is now 7+ years old and better products may be available to accomplish the book's mission.

I'm fairly confident that the two Stock funds have not been replaced by anything new.

But I know that, in the book, it was many times stated that the Vanguard Treasury Money Market Fund was not the ultimate since it was not 100% federal treasury.

Going to Vanguard I can see that the current composition of the Vanguard Treasury Money Market Fund (VUSXX) is:

U.S. Treasury Bills 100%

It seems that this fund has changed its investing policy since the book was written?

Similarly going to Fidelity I see that the composition of the Fidelity® Treasury Only Money Market Fund is:

Normally investing at least 99.5% of total assets in cash and U.S. Treasury securities.
In addition, the fund normally invests at least 80% of tis assets in U.S. Treasury securities.

Its current composition is:

U.S. Treasury Bills 72.23%, U.S. Treasury Coupons 28.64%, and Net Other Assets (0.87%).

Now going back through the book, it seems that the purest way to hold cash is to purchase T-Bills? It also cites these other suitable funds for cash:

iShares Short Treasury ETF (SHV)
SPDR Treasury bill ETF (BIL)
Gabelli U.S. Treasury Money Market (GABXX)

Also, stated was using United States savings bond.

In sum, for those of you following what is proscribed in the book (with no additional enhancements) how are you fulfilling the 25% cash portion of the portfolio?

Thanks
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Re: How do you invest the Cash portion?

Post by anato » Fri Jul 05, 2019 12:36 am

3 components for me:
1. I Bonds (every year, as many as I can get)
2. 1-3-6 months TBills in auto-roll at Fidelity
3. $10k-ish in a Fidelity cash account, in FDLXX

The dynamic is fairly easy: when the balance in the cash account reaches $11k (and no big expense is on the horizon), that $1k becomes a T-Bill (whichever has the best interest rate at the moment), ITOT, IJS (I have a Golden Butterfly, not a pure PP) o IAU.
Long term treasury bonds are all in the 401k and HSA (CA resident, so I need to avoid paying state taxes on that HSA), I don't keep cash in them except for the $1-2k building up for the next (mostly bond) purchase.
Once a year, I ransack the T-Bills to get as many I Bonds as I can.
Rinse and repeat.

If some big expense is on the horizon (e.g. new car), I just make sure I keep that money ready available in either the cash account or (if not happening in the next month or so) T-Bills, in excess of my target 20% allocation.
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Re: How do you invest the Cash portion?

Post by boglerdude » Fri Jul 05, 2019 3:27 am

Welcome to the forum OP
I use ibonds and Orion's 4% checking
With some effort you can buy more than 10k ibonds or EE bonds each year
https://www.bogleheads.org/forum/viewtopic.php?t=213142
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Re: How do you invest the Cash portion?

Post by dualstow » Fri Jul 05, 2019 7:35 am

Vanguard Treasury Money Market for the core;
ladder of treasury bills and short-term treasury notes bought directly thru Vanguard.
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Re: How do you invest the Cash portion?

Post by jhogue » Fri Jul 05, 2019 2:57 pm

Welcome to the forum.

I think the above suggestions will probably work out just fine for you.

That said, consider the following points:

1. Keep in mind that the purpose of Cash in the PP is to always hold the safest and most liquid asset possible in case one of the three volatile assets exceeds its 35/15 bands and needs to be rebalanced. Cash will smooth out your portfolio returns over time.

2. Investors in the HBPP have discovered that one of the four assets will almost invariably lags the others. Right now, that lagging asset is Cash. That makes it tempting to make the mistake of chasing yields in Cash by trying to substitute higher-yielding securities like unbreakable CDs or intermediate term Treasurys in place of more liquid, shorter-duration Treasurys. Don’t do it.
“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 ochotona » Sat Jul 06, 2019 9:18 am

I'm disappointed Ally's savings rate went down to 2.10%, but they function well from a customer service standpoint. They have 4.5 stars on DepositAccounts.com. I can't see changing to CIT or Synchrony in order to chase 20 basis points. CIT has only a 3 star rating, with 291 reviews, so that means something. I guess I can push more $$$ over to T-Bills at Fidelity.
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Re: How do you invest the Cash portion?

Post by sophie » Sat Jul 06, 2019 2:29 pm

Check out the numerous threads on cash. There are so many options it's ridiculous. It depends on your time horizon, tax situation, and how much you value simplicity. One approach is to divide your cash allocation into thirds: the top third is easily accessible cash (savings account, money market fund), the bottom "deep" third can be long-term holdings like Series I bonds or 5 year CDs, and the middle third is, well, middle (e.g. autorolled Treasury bills).

I happen to have high state/local taxes, so the highest yield for me right now is the one month Treasury bill, which I hold at Fidelity on autoroll. I use treasury money markets (Vanguard and Fidelity) and series I savings bonds also.
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Re: How do you invest the Cash portion?

Post by dualstow » Sat Jul 06, 2019 5:36 pm

ochotona wrote:
Sat Jul 06, 2019 9:18 am
I'm disappointed Ally's savings rate went down to 2.10%,
TD sent me an offer of a $500 bonus if I deposit 20K. So 2.5% After that, the savings rate is 0.10% I looked up Ally’s rate because I have checking with them and thought, ooh, 2.10%, not bad. (There are other offerings from TD that are higher, but without the bonus, I think).

Not really worth opening and closing accounts.
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Re: How do you invest the Cash portion?

Post by sophie » Sun Jul 07, 2019 10:11 am

Eh. Vanguard Treasury money market yields more than that, plus no state/local tax. Current 7-day yield 2.22%. For me, any of the Treasury-based cash options beats any online savings account, because of the tax exempt thing.

I've emptied out my Ally accounts and now use my Chase account & a Fidelity brokerage for all checking/savings functions, and I love it. It was worth a lot to have one less login to worry about. The Chase account is basically a conduit to Fidelity - I keep it mainly so I can access real banking services when the need arises. Fidelity lets you create additional brokerage accounts, so I have one for daily use that is firewalled from my main investment account. It serves double duty as both checking and a high-yield savings account. It's great because this gets around the 6 transaction limit for savings accounts, and you have lots of flexibility within the account.

A word of warning though - Fidelity's software is glitchy and can fail at any time. They have this fancy scheme where they'll draw on another account if needed to cover a payment, but it occasionally fails (happened this past April). I also found problems with their autoinvest feature not being properly recorded, and making duplicate transfers. If you do this keep things simple. Also don't bother with the CMA account unless you need it for ATM transactions.
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Re: How do you invest the Cash portion?

Post by dualstow » Sun Jul 07, 2019 4:22 pm

sophie wrote:
Sun Jul 07, 2019 10:11 am
Eh. Vanguard Treasury money market yields more than that, plus no state/local tax. Current 7-day yield 2.22%.
Darn, is it down to that already? It was 2.38% a week ot two ago. Even when you subtract the 0.09% ER, it’s been my favorite spot to hold cash.
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Re: How do you invest the Cash portion?

Post by sophie » Sun Jul 07, 2019 6:27 pm

1 month T bills are down to 2.26%, and the Vanguard fund is mostly that duration. Subtract 0.09% and there you go. The market is betting heavily on a Fed rate cut later this year, so it's getting priced in. I guess T bills will jump up (and some other things down e.g. gold) if the cut doesn't happen.
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Re: How do you invest the Cash portion?

Post by jacksonM » Sun Jul 07, 2019 6:57 pm

T bills for me too. Some of it is in various money market accounts at Fidelity and Vanguard for convenience sake but basically if I have a big bunch of cash it goes into T-Bills.

As for why I do this, it's because that was what HB suggested in his book and also the authors of the newer book by the folks who originally started this forum. They seemed to have spent more time thinking about these kinds of things than me and showed facts and figures for why it worked in the overall scheme of things so I didn't see any reason to delve any further to come up with my own plans.

Especially true nowadays when the best you can hope for with cash beyond what they recommended is is a minuscule improvement that doesn't really justify the risk of doing something else.
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Re: How do you invest the Cash portion?

Post by ochotona » Mon Jul 08, 2019 11:19 am

If I were younger, say in my 40s, I'd be buying Series EE Savings Bonds. If you hold for twenty years, they double in value, for a CAGR of 3.5%. But you have to hodl. Being in my late 50s now, I'm not sure I want to mess with TreasuryDirect when I'm in my late 70s. By that time I hope to be in HBPP autopilot Nirvana with my daughter doing the annual portfolio look.
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Re: How do you invest the Cash portion?

Post by Kbg » Tue Jul 09, 2019 9:23 am

I think "cash" needs to be quickly available. What is quick enough is up to the individual. While I have lots of T-Bills I manage monthly on T-Direct, it's also lots of work. I think at some point errors from mistakes resulting from an aging brain could exceed any advantage of DIY. Small bits of cash lying around from the discount to the maturity value of the bond are also a pain in the butt and means I'm not investing the "max" I could be.

Broken record spins again...simplicity is of value and perhaps worth paying for.
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Re: How do you invest the Cash portion?

Post by pmward » Tue Jul 09, 2019 9:24 am

ochotona wrote:
Mon Jul 08, 2019 11:19 am
If I were younger, say in my 40s, I'd be buying Series EE Savings Bonds. If you hold for twenty years, they double in value, for a CAGR of 3.5%. But you have to hodl. Being in my late 50s now, I'm not sure I want to mess with TreasuryDirect when I'm in my late 70s. By that time I hope to be in HBPP autopilot Nirvana with my daughter doing the annual portfolio look.
There's good likelihood you will wind up winning anyways. 3.5% might sound good in todays world, but who knows what the next 20 years may bring. The average of rolling T-Bills very well could destroy that 3.5% over 20 years.
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Re: How do you invest the Cash portion?

Post by Maddy » Mon Jul 29, 2019 3:25 pm

What is the critical difference between Vanguard's treasury money market fund and a short-term treasury fund? Is one more suitable for the PP than another?
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Re: How do you invest the Cash portion?

Post by dualstow » Mon Jul 29, 2019 6:06 pm

Maddy wrote:
Mon Jul 29, 2019 3:25 pm
What is the critical difference between Vanguard's treasury money market fund and a short-term treasury fund?
Is one more suitable for the PP than another?
Being both a money market fund and one that holds just treasurys, VUSXX is the ultimate cash vehicle for the pp, in my opinion. As a money market, each unit is a dollar. Put in $10,000, and know that you're going to be able to take out $10,000 (plus interest earned) when you need it- Well, you should be able to get it within a day if you sell shares to your sweep account, the Federal Money Market thing.

Prime money market fund also maintains a $1 share price, but even that fell victim to "breaking the buck" in 2008 or '09, losing money with most money market funds. It's not a terrible choice most of the time.

A short-term treasury fund has the *quality* of VUSXX, but not being a money market fund, I would think it could fluctuate in value, especially if it holds some 2-year notes. You can sell shares when you want to, but they may not always be equal to what you put in. (They might be worth *more*, and the dividends might be better than VUSXX).

So, aim for something *very* short term and even then, you might want to have your core cash in either VUSXX or just t-bills held directly by you, a fine 3rd choice.

The expense ratio (ER) between the two funds may be different. VUSXX's ER is $0.09, ie a $9 annual fee if you maintain a balance of $10,000.

And finally, you need US$50,000 to get started in VUSXX, although you don't have to maintain that balance.
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Re: How do you invest the Cash portion?

Post by Ad Orientem » Wed Aug 07, 2019 7:40 pm

vnatale wrote:
Thu Jul 04, 2019 3:05 pm

In sum, for those of you following what is proscribed in the book (with no additional enhancements) how are you fulfilling the 25% cash portion of the portfolio?

Thanks
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Re: How do you invest the Cash portion?

Post by dualstow » Wed Aug 07, 2019 8:24 pm

^ha. The only form of cash that is no good is cash under the mattress. ^
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Re: How do you invest the Cash portion?

Post by Smith1776 » Thu Aug 15, 2019 1:58 am

Up here in Canada it's all about the BMO Short Federal Bond Index ETF for cash, and I've got quite a few coins in that fund. It's really one of the few decent choices up here in the north.

https://www.bmo.com/gam/ca/advisor/prod ... file%2FZFS
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Re: How do you invest the Cash portion?

Post by dualstow » Thu Aug 15, 2019 8:10 am

Smith1776 wrote:
Thu Aug 15, 2019 1:58 am
Up here in Canada it's all about the BMO Short Federal Bond Index ETF for cash, and I've got quite a few coins in that fund. It's really one of the few decent choices up here in the north.

https://www.bmo.com/gam/ca/advisor/prod ... file%2FZFS
After all that Adam Smith talk, I got it in my head that you were in Scotland. Oops.
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Re: How do you invest the Cash portion?

Post by Xan » Thu Aug 15, 2019 9:15 am

He's switched to Isaac Newton now so I'm all confused.
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Re: How do you invest the Cash portion?

Post by Kriegsspiel » Thu Aug 15, 2019 9:17 am

I thought that was the guy from Def Leppard.
And as for him who lacks the courage to defend even his own soul: Let him not brag of his progressive views, boast of his status as an academician or a recognized artist, a distinguished citizen or general. Let him say to himself plainly: I am cattle, I am a coward, I seek only warmth and to eat my fill.
Solzhenitsyn, Live Not By Lies
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Re: How do you invest the Cash portion?

Post by dualstow » Thu Aug 15, 2019 11:30 am

Kriegsspiel wrote:
Thu Aug 15, 2019 9:17 am
I thought that was the guy from Def Leppard.
O0 See now if Medium Tex were here, he would rewrite "Photograph" with pp-related lyrics.
Sometimes, vendors will use terms like “military-grade encryption” to try to illustrate how secure or safe an encryption standard is. However, “military-grade encryption” isn’t actually a thing.‘ - Protonmail
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Re: How do you invest the Cash portion?

Post by Kriegsspiel » Thu Aug 15, 2019 11:52 am

What about the superb Gyroscope, by Dismemberment Plan?
And as for him who lacks the courage to defend even his own soul: Let him not brag of his progressive views, boast of his status as an academician or a recognized artist, a distinguished citizen or general. Let him say to himself plainly: I am cattle, I am a coward, I seek only warmth and to eat my fill.
Solzhenitsyn, Live Not By Lies
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