New PPer needs advice

[harriett]

For a few years after I retired, I bought and sold stocks in an IRA that I had rolled over from my 403B, with the result that it did OK for a while, then took a dive. For years after that I simply ignored it,  because looking at it was too depressing.

Recently I started giving it some thought again, and decided to try to grow it a little with the least amount of effort by transferring it from Scottrade to Vanguard and investing in a diversified portfolio of index funds. I sold all the stocks and spent hours pondering the matter of asset allocation, reading various blogs and articles on the internet.

I finally decided to follow Harry Browne's model,  25% in Vanguard Total Stock Market, 25% in Vanguard Long Term Treasury, 25% in a gold ETF, and 25% in . . .

Which brings me to my question, after this long boring post (Sorry). Since Vanguard's Treasury Money Market fund is closed to new investors, what should I do with the cash portion of the portfolio? . . . another Vanguard fund? . . . a non Vanguard fund like Fidelity Treasury MM? . . . or something else entirely?

Help! I need guidance.

Thanks,
Harriett

[AdamA]

Because interest rates are so low right now, very few big brokerags offer Treasury Only Money Market funds.  

The only one I'm aware of is CPFXX from American Century Investments.  It's one of the originals, and has a minimum of $2500.  The thing is, it's expense ratio is .47%.

Average maturity is 52 days.

Your other option would be something like Vanguard Short Term Treasury Fund (VFISX).  Minimum is $3000 and it's expense ratio is .22%.  The average maturity is 2.4 years, so there is some added interest rate risk with this fund.  

I prefer CPFXX because I like to follow the PP rules as closely as possible, but I think most on this site agree that something like VFISX is probably okay.   CPFXX is also easy to make regular contributions to, and you can write checks from the account if you need to.

You could, of course, simply buy Treasury Bills directly from the Treasury, which is easy and has no fee.  

[harriett]

What's your opinion of Fidelity FDLXX? Does "Expense Ratio after Reductions: as of 04/30/2011 0.17%" mean that they've reduced it from the .42 ER that it had before? And if so, are they likely to raise it again if interest rates go up?

[BRESLOW]

Why not put 25% in TLT and 25% in SHY. If you have enough in Vanguard the ETF costs are about $2 each trade. You are done.

[l82start]

The ETF SHV should be used.  You can use SHY if you want to take a bit more interest rate risk.

i have seen both suggested but i have never heard the difference between them explained, what are the pros and cons of each, SHV and SHY?

[harriett]

I'd appreciate your comments on Gabelli U.S. Treasury Money Market Fund GABXX.

Thanks

[AdamA]

I'm not that familiar with either fund, but from what I saw on google finance they both look good for PP purposes.

GABXX has a very low expense ratio (.08%) and a minimum of $10K.

FDLXX has an expense ratio of .42% and a minimum of $25K.  

Average maturity for GABXX is 90 days.  Not sure what it is for FDLXX.

Again, I'm not that familiar with either fund, so I could be missing something.  

[harriett]

Thank you Adam. I like the low expense ratio of GABXX, but I don't know whether or not I should worry about the safety. As a novice to fund investing, I'm totally unfamiliar with the different fund families. The Gabelli fund appears to be kosher: http://www.gabelli.com/Gab_pdf/factsheets/404facts.pdf. But what do I know?

[AdamA]

Thank you Adam. I like the low expense ratio of GABXX, but I don't know whether or not I should worry about the safety. As a novice to fund investing, I'm totally unfamiliar with the different fund families. The Gabelli fund appears to be kosher: http://www.gabelli.com/Gab_pdf/factsheets/404facts.pdf. But what do I know?

I worry about stuff like this sometimes, and I've come to the conclusion that's it's probably silly. 

The people who are going to get burned are the ones taking unhedged risks in the stock, bond, or commodities markets, not the ones who are combing the investment world for a reasonable treasury only money market fund. 

If you are worried, though, it is very easy to buy T-bills directly from the Treasury at TreasuryDirect.com.  You could also split your cash throughout a couple different funds, which I think is a very good idea for all of the asset classes. 

[Pkg Man]

I looked at the Gabelli fund too, but I thought the expense ratio was higher than what was quoted earlier (.08%).  Maybe that is a temporary expense ratio?

At any rate I decided to just keep a combination of online savings, I and EE bonds, T-bills, and SHY. 

For the most simple route I'd just do SHY and/or SHV.  The expense ratio is quite low and it is convenient.

[AdamA]

For the most simple route I'd just do SHY and/or SHV.  The expense ratio is quite low and it is convenient.

Yes, but just keep in mind that these are ETFs and therefore carry a bit more counterparty risk, supposedly. 

[harriett]

I can't buy the Gabelli fund in my Vanguard account, since they will only let me buy a Vanguard fund, which they don't have: Catch 22.

I never heard of counterparty risk, so I looked it up. and now have a vague understanding of it. Will the currant brou-ha-ha over the debt ceiling have an effect on the counterparty risk of SHY or SHV? (I'm assuming Vanguard will let me buy one or both of these.)

[MediumTex]

SHY or SHV are probably the simplest options.

VFISX, while not perfect, is probably fine for most purposes.

[AdamA]

I never heard of counterparty risk, so I looked it up. and now have a vague understanding of it. Will the currant brou-ha-ha over the debt ceiling have an effect on the counterparty risk of SHY or SHV? (I'm assuming Vanguard will let me buy one or both of these.)

I have to admit that I don't understand it fully myself.  I mean, I know what it is...it's when someone can't pay you your money, but I'm not really sure why it's more of a risk with ETFs than with regular mutual funds. 

Having said that, I avoid ETFs.  This is probably just paranoia on my part, but I see so many of them popping up lately, not only for stocks, but for commodities, bonds and currencies as well, it makes me uncomfortable. 

I hear people call into financial talk shows talking about how they just bought a bunch of SLV or DBA or whatever.  The average investor suddenly thinks he's Jim Rogers, and I have to think that something's going to go wrong with these eventually.  Could simply be that the market tanks and these people lose money, but I wonder how these more exotic ETFs would behave in the chaos of a true market crash. 

For this reason, I prefer to pay the extra expense and use a treasury only money market fund.  The US government will do whatever it has to do to make sure that you always have timely access to your cash.  Not sure I can say the same thing about iShares.