need help optimizing my cash allocation

[akratic]

My PP is finally live, including VTI, TLT, Kruggerands, American Eagles, some IAU, and a 20% VP.  But I could use some help finishing off the cash allocation.  Here's what I'm thinking:

For convenience:
- ~$5k in a Bank of America checking account (0% interest)
- $0-2k in VMMXX, which is where Vanguard accumulates dividends

For safety:
- twelve months living expenses in SHV.  Or should it be BIL?

For chasing yields but still "cash", in order:
1) I bonds ($10k online + paper)
2) EE bonds ($5k paper)
3) EE bonds ($5k online)
4) SHY (the rest)

I was originally thinking that my yield chasing would be through rewards checking, but the recent Durbin Amendment blew up the rewards checking account, just after I finished jumping through the necessary hoops to create it.  Now I have a bad taste in my mouth regarding rewards checking, and my new plan for cash yield chasing is I Bonds > EE Bonds > SHY.

How does that sound?

[AdamA]

Have you considered simply using Treasury Direct to purchase T-bills?  What about a Treasury-Only Money Market fund.

Technically, these are the only two instruments recommended for the PP (both are easy to purchase). 

[TripleB]

Have you considered simply using Treasury Direct to purchase T-bills?  What about a Treasury-Only Money Market fund.

Technically, these are the only two instruments recommended for the PP (both are easy to purchase). 

Both are bad options at the moment.

1) Cash is the LEAST tax-efficient of the 4 assets and should be the first to go into a tax-shelter. Treasury Direct doesn't allow IRAs. Right now at 0%, it doesn't matter that the cash is in taxable. However when rates rise, it's a bad place to keep it.

2) Treasury MMFs are all currently frozen to new money because the administrative overhead is greater than the underlying yield. It would be a great option if it were actually an option, but it's been about 2 years since Treasury MMFs have been frozen with no end in sight.

Here's some reasonable ideas to use for Cash Alternatives. There is obviously risk involved above using pure T Bill strategy so you have to decide what level of risk you are willing to take.

a) Alliant Credit Union offers an NCUA insured checking account at 1% now. Capital One also offers a similar 1% rate that is FDIC insured.
b) I-Bonds are great as you mentioned
c) Physical Cash can be one alternative and should be kept on hand for a few months expenses in case of frozen accounts or disasters
d) a small amount of low-fee annuity (I'd say up to 5% of your cash portion which is only 1% of your overall portfolio)
e) Vanguard's Short-Term Treasury Bond Fund (about a 2 year maturity)
f) individual 52 week T-Bills held in an IRA brokerage account

[AdamA]

2) Treasury MMFs are all currently frozen to new money because the administrative overhead is greater than the underlying yield. It would be a great option if it were actually an option, but it's been about 2 years since Treasury MMFs have been frozen with no end in sight.

Many, but not all, are frozen to new money.  Here's one that's still open with a minimum investment of $2500.

https://www.americancentury.com/funds/f ... p?fund=901

Yes, it's expensive (.47), but I think it's worth it.  If rates do ever start to rise, I'd prefer to be in the shortest maturity T-bills I can find. 

I think USAA also has one if you're allowed to use them. 

[jco]

Good day, Akratic!

Care to use your mastery of GoogleDocs to help the master PP component list from this thread?:
http://gyroscopicinvesting.com/forum/ht ... 068#p17068

[moda0306]

Adam,

Maybe it's just me, but wouldn't you rather sit on cash in your safe than pay half a percent to have someone hold it for you?

Maybe your cash portion is a bit bigger than mine, or is in a tax-deferred space through which "mattress money" isn't a viable option.

As a deflationist, I simply can't pay someone .5% to hold my cash just in case ST rates rise... SHV seems like a very reasonable alternative.

[AdamA]

Adam,

Maybe it's just me, but wouldn't you rather sit on cash in your safe than pay half a percent to have someone hold it for you?

Maybe your cash portion is a bit bigger than mine, or is in a tax-deferred space through which "mattress money" isn't a viable option.

As a deflationist, I simply can't pay someone .5% to hold my cash just in case ST rates rise... SHV seems like a very reasonable alternative.

You're probably right, but I try to do everything by the book. 

The MMF I recommended has been around since 1985.  SHV is only a few years old. 

ETF's in general make me nervous, although I can't name one that ever failed or ripped anyone off.  It's more of a personal preference than anything, and could be completely unfounded...still, helps me sleep at night. 

[TripleB]

I think USAA also has one if you're allowed to use them. 

I just checked, and you're right. It does have a 0.45% ER though. For that money I'd rather manage buying my own TBills at auction through the brokerage.

[Ariadne22]

Fwiw, Treasury MMF at TRowePrice is still open.