How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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mathjak107
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Re: How do you invest the Cash portion?

Post by mathjak107 » Sat Apr 04, 2020 4:55 am

we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all ..


i much prefer high yield at this stage ..the high yield funds have been beaten up so badly , like every company will default ... some are paying over 7% interest .....

i find that safer then total or corporate bond funds where they are mostly BBB ... the last rung of investment grade ...the big difference is not only the higher rate on high yield but high yield is already "junk bonds " .

one slip from BBB and investment grade gets down graded to junk ... that will be a nasty drop in value ... high yield is already priced as junk .

so each drop i have been adding equities and high yield . although i do own tlt and gld at the moment too .

i think high yield may actually beat equities this year like 2016 where my fidelity high yield fund returned 19%
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Re: How do you invest the Cash portion?

Post by Libertarian666 » Sat Apr 04, 2020 7:34 pm

mathjak107 wrote:
Sat Apr 04, 2020 4:55 am
we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all ..


i much prefer high yield at this stage ..the high yield funds have been beaten up so badly , like every company will default ... some are paying over 7% interest .....

i find that safer then total or corporate bond funds where they are mostly BBB ... the last rung of investment grade ...the big difference is not only the higher rate on high yield but high yield is already "junk bonds " .

one slip from BBB and investment grade gets down graded to junk ... that will be a nasty drop in value ... high yield is already priced as junk .

so each drop i have been adding equities and high yield . although i do own tlt and gld at the moment too .

i think high yield may actually beat equities this year like 2016 where my fidelity high yield fund returned 19%
Most of the BBB stuff should be rated as junk already but the rating services are slow to downgrade it. As you suggest, when they do, look out below.
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Re: How do you invest the Cash portion?

Post by CT-Scott » Thu Apr 16, 2020 8:27 am

Other than cash in a few bank accounts, all of our savings are in 401k accounts and Roth IRAs. I did something drastic (and not conforming with the HBPP philosophy) and sold everything on 2/27 inside of our Roth IRAs, so that's now sitting in MM funds. Inside of our largest 401k accounts, we moved everything to the one Stable Value fund that was offered by each of our 401k providers, as I was/am under the belief that the Stable Value fund was the "safest" option available.

Some questions:

1) Just how "safe" can I expect these Stable Value funds to be? I read somewhere that a Stable Value fund inside of a 401k is "insured", which is part of what makes it the safest choice. But when I spoke to an adviser at Fidelity (my employer's 401k provider) he seemed uncertain about that (I didn't get the impression that he was 100% knowledgeable about it). FWIW, the one Stable Value fund in my account is the Wells Fargo Stable Value fund. I can provide more details if it would be helpful. From what I can gather, it looks like I might be getting about a 2.5% annual return (currently) on that.

2) I believe I've read before that a 401k's Stable Value fund qualifies as "Cash" from a PP perspective. True?

3) Other options inside of my 401k would be a couple of bond funds that are all/mostly Treasuries (VSIGX and ABTIX). Should I consider moving some of my Stable Value funds over to those? Or wait until Treasury yields look better?

4) The PP calls for 25% in long-term treasuries, but I don't believe the Treasury fund options inside my 401k (noted in #3) are restricted to *only* long-term Treasuries.

I read about the HBPP many years ago and liked the idea (leading to me moving all of my money in one of my smaller 401k accounts to PRPFX), but that didn't seem to gain me much, so I moved it back out of PRPFX and into all-stocks a few years later. Now that I'm revisiting this forum and reading up on things more, I still like the concept of the HBPP, but I think I'm learning that it's not really possible to follow it properly if most/all of your investment funds are inside of a 401k / Roth IRA.
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Re: How do you invest the Cash portion?

Post by CT-Scott » Fri Apr 17, 2020 7:13 pm

No replies to my question? Bumping the thread.
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 17, 2020 7:17 pm

Wouldn't the safety of any stable value fund depend upon how safe the insurance company is backing it? I'm forgetting exactly how the insurance company produce these funds.

In any event they will never be as safe as a short-term Treasury Bill fund. But the latter will pay less.

Therefore, it comes down to which you prize more -- return or safety.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 17, 2020 7:39 pm

CT-Scott wrote:
Fri Apr 17, 2020 7:13 pm
No replies to my question? Bumping the thread.
Although written nearly 10 years ago this from the immortal MediumTex may be helpful to you:

viewtopic.php?f=4&t=205#p1545

Vinny
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Re: How do you invest the Cash portion?

Post by CT-Scott » Sat Apr 18, 2020 10:58 am

vnatale wrote:
Fri Apr 17, 2020 7:17 pm
Wouldn't the safety of any stable value fund depend upon how safe the insurance company is backing it? I'm forgetting exactly how the insurance company produce these funds.

In any event they will never be as safe as a short-term Treasury Bill fund. But the latter will pay less.

Therefore, it comes down to which you prize more -- return or safety.
Well, the problem is that the bulk of our funds are locked inside of our employer-chosen 401k accounts, which have limited options. My wife's options look especially awful. I just created a new post with more details:

viewtopic.php?f=1&t=10666
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Re: How do you invest the Cash portion?

Post by ochotona » Sun Apr 19, 2020 7:15 am

If the plan's money market is unsafe maybe only invest as much so as to get the employer match, then invest in external IRAs and Brokerage accounts. Do you have HSA access? You can transfer those assets out as often as you wish while in-service, Fidelity is the best choice. Never use it consider HSA as part of retirement.

Sometimes if you're over age 59.5 you can do an in-service 401k roll to an IRA and liberate those funds. Once a year I believe.

Do you use I- Bonds?
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Re: How do you invest the Cash portion?

Post by jhogue » Sun Apr 19, 2020 8:26 am

1. I would NOT cash out 401k's just because my investment options don't immediately allow you to conform the Permanent Portfolio's architecture. The tax hit will be significant, starting with a 10% penalty and ending with higher tax bracket rates at the state and federal level. Think of your transition as a multi-year strategy rather than a one time event.

2. I had a stable value fund for a few years in a 457b account. I picked it because it was the lesser of all of the other available evils. The yield was OK, but I rolled it over to my IRA as soon as I reached 59.5 years, as ocho suggested above.

3. My 401k provider (Fidelity) had a brokerage window option, which allowed me to pick a much broader range of investments, and that brought me closer to a true HBPP much sooner than otherwise. I would ask the firm's HR reps to help set this up if they don't already have this option. Fidelity reps can and will help with implementing this option as well.
“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 vnatale » Thu Apr 23, 2020 11:34 pm

jacksonM wrote:
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.


Another of my favorite responses....

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Thu Apr 23, 2020 11:44 pm

sophie wrote:
Sun Oct 27, 2019 11:07 am
ochotona wrote:
Fri Oct 25, 2019 7:19 pm
Does anyone use SHV for cash?
I don't use ETFs for cash, but it's mainly because they are a PITA to trade. Plus I've experienced a bit of float with share values. Much prefer money market funds pegged at $1/share and straight up T bills.

Also, VUSXX (Vanguard treasury-only MM) blows SHV away on the expense ratio (0.09% vs 0.15%). I wish FDLXX (Fidelity's treasury MM) would come down from its eye-popping 0.42%.
How is this working? FDLXX is ALWAYS 100% Treasury Bills while VUSXX need only be 80%. The expense ratios are still the same. Yet how does FDLXX today have a yield of 1.55% while VUSXX's is only 0.59%? Wouldn't one expect the opposite?

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 12:09 am

dualstow wrote:
Sun Oct 27, 2019 1:06 pm
VUSXX/#11 is the greatest.
As epitomized by it periodically becoming made unavailable to us if you don't already have it!

Vinny
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Re: How do you invest the Cash portion?

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

drumminj wrote:
Wed Nov 27, 2019 1:07 pm
jhogue wrote:
Wed Nov 27, 2019 10:10 am
Why do you want to buy a 5 year FDIC-backed CD, which is illiquid (as you yourself described it) and not as safe as a T-bill?
I buy both, to be honest. For "deep cash", as folks tend to call it, I have some 5-yr CDs fetching > 3%. Yes, I'm chasing yield, but I can withdraw the money immediately (for a small penalty). It's a bit less accessible than cash in an FDIC-insured account, but for some of my cash, the difference in yield is worth it.

I also have a bunch of 13-week treasuries, cash in a bank account, and cash on hand. There's some risk with FDIC, but there's also risk with SIPC (possibly more?) if you're holding STTs with Fidelity, and there's risk with TreasuryDirect (as discussed on this forum).

Pick your poison!
Provocative!

Vinny
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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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