Where do you keep your cash?

[sophie]

There have been many posts on cash options, including this excellent summary by BearBones:

http://gyroscopicinvesting.com/forum/ht ... 576#p36576

There's no question but that this is probably the most complicated asset to organize, and with all the new members on the forum it might be worth revisiting.  I'm interested to hear how other people have their cash set up.  Below are some of the possible assets that have been mentioned, and yes I'm aware that not all of them are fiat but it's a good bet that they're commonly used.

For taxable cash, I keep a minimum of 6 months expenses in an online savings bank, a chunk in Series I bonds, and the rest in short term bonds that mature in 1 year or less (kind of a ladder) at a brokerage.  I've been debating about shifting to the T bill ladder at Treasury Direct, as some people have done, or forgoing the tiny bit of interest and going with one of the direct access 100% treasury money market funds - because selling T-bills out of Treasury Direct sounds difficult.

Tax-advantaged cash is easier:  T-bill ladder, VFISX, Vanguard Prime MM, TIAA Guaranteed depending on what's available where.

List of options:
Taxable:
Bank savings accounts (one bank, multiple banks)
CD's
Money market fund at brokerage (most 100% treasury are closed; Vanguard Prime is 80% treasury, FDRXX has $25,000 minimum balance)
Money market fund with direct access (American Century, Dreyfuss, Gabelli)
ETFs < 1 year duration (SHV, BIL, SST; must be held at a brokerage)
T-bill ladder at Treasury Direct
T-bill ladder at brokerage
Short term bond ladder at brokerage
Series I savings bonds
Series EE savings bonds
Short term bond funds or ETFs (VFISX, FSBIX, SCHO, SHY)

Tax-advantaged:
These are limited to brokerage accounts or 401K plans, so things are much simpler:
CDs
Money market funds
Stable value funds
Short term ETFs
Short term bond funds or ETFs
Treasury bill or short term bond ladder

[whatchamacallit]

My favorite place for cash is I-bonds.

The rest is in NCUSIF or FDIC accounts that I consider operating funds.

I would probably go to EE bonds if I ran out of space in I bonds and try to keep them for 20 years.

[KevinW]

In my Roth at Vanguard I just leave cash in the sweep account which is their Prime MMF. As OP said it is about 1/2 Treasury/Federal bills which isn't perfect, but could be worse. I will switch this to their Treasury MMF as soon as it reopens.

In my 401k I use their cash core fund, which is very similar to the Prime MMF. When the balance gets larger I may move some into BIL in my brokerage window.

I also have a chunk of cash in an FDIC online savings account for emergency liquidity purposes. I plan on switching this to Vanguard's Treasury MMF once that reopens, too.

[dualstow]

I was just thinking about this on my walk. (Gosh it's nice outside today).

I have:

money market funds
vanguard's treasury money market fund (soft-closed at present)
SHY
6-mo bills
1-YR bills
2-YR notes
3-YR notes

Eventually, I will organize these into some kind of ladder.

In my VP, I have
I-Bonds that I bought before I knew of the pp. They're paper!
10-YR notes

When my notes are close to maturity, I may designate them as pp cash.

[Reub]

As a Federal Thrift Savings Plan participant, I leave my cash component in the "G" Fund, which is like having your cake and getting to eat it too.

[BearBones]

PP
VUSXX
3-12 mos TBills at TD (for deeper cash)
IBonds (for deepest cash)

VP
US banks & credit unions
1 yr GICs in Canadian bank (for deep cash)

[Bean]

In order of deep cash to liquid cash.

I Bonds
TBills
Sweep Accounts for Stocks and Bond Brokerages

[smurff]

I Bonds
SHY
Sweep accounts at brokerages
Online savings account with a brick and mortar bank
physical currency, in a mix of all denominations $50 and below

[Pointedstick]

Under the mattress...

[smurff]

In the cookie jar...

[MachineGhost]

Since cash is a huge component of the PP's returns and for muting its risk, it pays to increase yield but not at expense of safety.  So for me, the primary focus is I-Bonds up to the yearly limit and then 5-year CD ladders spread over top-rated banks to bypass the per account FDIC limit.  Historically, CD's have outperformed T-Bills and T-Notes and as Congress backstops the FDIC via the Treasury, there is no more actual systemic risk over holding low-yielding Treasuries.  FDIC was the direct child of the Great Depression, after all, and it is one of those ultra-rare government agencies that actually works efficiently.  Back in 2008-2009 when money market mutual funds broke the buck, Congress also backstopped them, but that seems more like an exception to the rule that would be risky to rely upon in the future.

Beyond the above (wow, you must be dirty rotten filthy stinkin' rich!), I view permanent mutual life insurance with PUA riders and discounted immediate annuities with inflation protection as cash-level worthy.  Safety isnt an issue with the relatively few mutual insurance companies, but annuities definitely are so I would spread the risk among multiple top-rated insurance companies.

Useful sites:

Weiss Ratings: http://weissratings.com/
Multimillion Dollar FDIC Insurance: http://www.cdars.com/

[dualstow]

Not that it would determine what I hold, but are t-bills state-tax-free the way 30-YR bonds are?
I don't know because I only recently started holding them. (Let's pretend t-bills are actually paying something).

[sophie]

Not that it would determine what I hold, but are t-bills state-tax-free the way 30-YR bonds are?
I don't know because I only recently started holding them. (Let's pretend t-bills are actually paying something).

Yes.  It still doesn't make them comparable to CDs - those 1% 1 year returns look good don't they?  Of course, HB says that those higher rates must mean you're taking on higher risk.  BTW I notice you don't have I Bonds except those old paper ones?

Interesting results so far.  A lot of people are using brokerage sweep accounts in lieue of money market funds.  I'm a bit uneasy about that after reading Fidelity's statement that the core accounts aren't meant to hold cash, but there doesn't seem to be any reason why not.  I might call and ask them.

[dualstow]

BTW I notice you don't have I Bonds except those old paper ones?

Yes, but only because I got locked out of my account by bungling the password. I have to fill out a form at a bank to unlock it and I haven't bothered. One of these days years. In principle, I have nothing against I Bonds.

  A lot of people are using brokerage sweep accounts in lieue of money market funds. 

My brokerage sweep account is a money market fund. I thought they all were, no?

I was rereading bits of Best Laid Plans last night. Browne writes about why the FDIC is not good enough for him and his reasons make sense to me. At the same time, I have no doubt that there are members here who preach treasurys  and quietly invest in CDs. I get that, too. It seems like even in the event of a real calamity, CD holders might have to wait longer to get all their money. In the bogleheads forum, nisiprius has written about how a bank failure was basically a nonevent for him. The bank got a new name and his CDs were still honored.

[Kriegsspiel]

1-3 year treasuries makes up about half of my cash.  The other half I have in a savings account (CD too, when that runs out I'll just roll it into the savings account).  The amount I have in the savings accounts is about the most I would use to jump on an immediate opportunity, so from here out the rest of the cash will go into treasures, and I Bonds.  I just started reading a bit more about I Bonds, and I'm pretty excited about them, so I'll prioritize putting the "long cash" in them, then treasuries, from now on.

[rickb]

It seems like even in the event of a real calamity, CD holders might have to wait longer to get all their money.

It's not too hard to think up a real calamity scenario where CD holders get only a fraction of their money.  FDIC insurance is fine for an occasional smallish bank or two, but if any of the major banks fail or some other systemic event happens (the major banks are so big that if any of them fails it will be a systemic event) the FDIC could very well not have enough money to honor its commitments and Congress would have to vote to allocate money to bail out the FDIC.  Would they?  Who knows.  We do know the current Congress has threatened to refuse raising the debt limit. 

In contrast, the Treasury is constitutionally obligated (by the 14th amendment) to pay off t-bills and t-bonds (and i-bonds and ee-bonds).  If push comes to shove, for example Congress refuses to raise the debt limit, I suspect the Treasury would pay off US debt before paying virtually anything else (like, say, Congressional salaries, or even Social Security payments).

[Pointedstick]

In contrast, the Treasury is constitutionally obligated (by the 14th amendment) to pay off t-bills and t-bonds (and i-bonds and ee-bonds).

And the government never violates the constitution... 

Constitution be damned, the one thing we do know is that politicians pander to voters. And a lot more Hardworking Middle Class Americans(tm) have money in savings accounts and CDs than they do in treasury bonds. If congress ever lets those people take a haircut, I think there'd be violence.

That said, All my PP cash is government rather than commercial debt. SHY, SCHO, and VFISX. In the process of moving some to a T-bill ladder.

[smurff]

Interesting results so far.  A lot of people are using brokerage sweep accounts in lieue of money market funds.  I'm a bit uneasy about that after reading Fidelity's statement that the core accounts aren't meant to hold cash, but there doesn't seem to be any reason why not.  I might call and ask them.

My brokerage cash is basically an accumulation vehicle for balancing into bonds or stock.  I generally don't keep any specific tranche of cash there longer than a few months, but since it is part of the PP, I designate it as part of the cash allocation.

Most brokerages give you a choice between money market funds or FDIC-protected savings for this uninvested cash, and I chose the latter.  The brokerage will typically have one of these choices as a default, in case you forget to make the election yourself.

[dualstow]

@rickb: yup, that was basically Harry Browne's viewpoint in Best Laid Plans.

[KevinW]

A lot of people are using brokerage sweep accounts in lieue of money market funds.  I'm a bit uneasy about that after reading Fidelity's statement that the core accounts aren't meant to hold cash, but there doesn't seem to be any reason why not.  I might call and ask them.

I figured that, if the sweep MMF is acceptable, then KISS and just use that rather than making things more complicated with a second cash position. Do MMF funds at the likes of Vanguard, Fidelity, etc. become less safe somehow when they're in the role of a sweep account?

[sophie]

A lot of people are using brokerage sweep accounts in lieue of money market funds.  I'm a bit uneasy about that after reading Fidelity's statement that the core accounts aren't meant to hold cash, but there doesn't seem to be any reason why not.  I might call and ask them.

I figured that, if the sweep MMF is acceptable, then KISS and just use that rather than making things more complicated with a second cash position. Do MMF funds at the likes of Vanguard, Fidelity, etc. become less safe somehow when they're in the role of a sweep account?

Among other advantages...another is that you get to bypass the minimum balances.

At least at Fidelity, they're aligned with the money market funds but not quite the same.  For example, the sweep account corresponding to FDRXX is SPAXX.  I'm not sure how they're different.  I'll give them a call when I can but that won't be for several days - if someone else wants to feel free.

Incidentally at Fidelity you can change your sweep account anytime, but not online.  You have to call.

[KevinW]

Thanks for the response. Please do let us know if you learn of any specific differences.

[clacy]

Most of my cash is in DLTNX (Jeffrey Gundlach's total return fund) and BOND (Pimco's total return ETF). 

I am not going to keep 25% of my portfolio in an asset class that the Fed has said they will suppress through at least 2014.

[BearBones]

I figured that, if the sweep MMF is acceptable, then KISS and just use that rather than making things more complicated with a second cash position. Do MMF funds at the likes of Vanguard, Fidelity, etc. become less safe somehow when they're in the role of a sweep account?

MMFs, sweep or not, are the worst of both worlds, I believe. See this article:
http://www.learnbonds.com/money-market- ... get-worse/

"Investors can park cash in a money market mutual fund and receive lower rates of return than they could in a checking or savings account (depending on deposit levels and varying by bank).  Furthermore, the money market mutual fund will not be FDIC insured, as the checking or savings account would be.  On top of this, in the event of a run on the money market system, similar to what occurred in 2008, redemptions can now be suspended with the blessing of the board of directors (rather than the pre-2010 way of having to request an order from the SEC allowing suspensions)."

Vanguard offers no FDIC insured sweep option. Fidelity does in its "Fidelity® Cash Management Account Program" (although you have to set it up as such):
https://accountsetup.fidelity.com/ftgw/ ... ?type=fcma
The money is swept overnight into one of several FDIC insurred accounts at participating banks:
https://scs.fidelity.com/accounts/pdf/sca_disc.pdf

For those with Fidelity accounts, if you do not specify this option, the sweep account is a non-FDIC interest-bearing cash account called FCASH. Other options also are available, including SPAXX and several state muni MM funds.
https://www.fidelity.com/trading/faqs-about-account

[BearBones]

I am not going to keep 25% of my portfolio in an asset class that the Fed has said they will suppress through at least 2014.

That is the Fed's purpose. Push people out of cash into more risky investments.