If I go PP, do I still need a Cash Emergency Fund?

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fishdrzig
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by fishdrzig » Fri Jul 03, 2015 7:29 pm

What ETF would you recommend as CASH for the taxable account/emergency fund?
I am presently using VMLTX which is liquid and pays off dividends tax deferred.  All my other CASH is in BIL in tax advantaged accounts presently.
Any thoughts on this?
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KevinW
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by KevinW » Sat Jul 04, 2015 7:29 pm

fishdrzig wrote: What ETF would you recommend as CASH for the taxable account/emergency fund?
I am presently using VMLTX which is liquid and pays off dividends tax deferred.  All my other CASH is in BIL in tax advantaged accounts presently.
Any thoughts on this?
This has been discussed a lot already, so you may want to try some searches.

The standard advice is that PP cash must be T-bills, not munis. An ETF may be inconvenient in taxable since its NAV fluctuates slightly, so trades will generate small capital gains and losses that are taxable events. An old fashioned stable-dollar Treasury money market would be more convenient and what I'd use in taxable. Most of these are closed but IIRC, Fidelity, Schwab, and T. Rowe Price still have open funds (probably a few others too). If you really do want an ETF, BIL and SHV are obvious choices. Some people prefer 1-3 year treasury ETFs, and SHY, VGSH, and SHO are popular choices.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by fishdrzig » Sun Jul 05, 2015 9:17 am

So for the emergency fund, it is best to just have it all in a MM fund or T-bills ETF BUT in a taxable account, correct?  The reason for the taxable account is because of liquidity, correct?
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Pointedstick » Sun Jul 05, 2015 3:37 pm

This is a great topic, and key I think for understanding the benefit of the PP. Many other portfolios cheat on returns by not having any cash, but in real life nobody holds no cash; they simply don't count it as part of their investment portfolio. As a result, their investment portfolios are a smaller percentage of their net worth than a PP investor would have. So an apples-to-apples comparison of two people with identical net worths, one in the PP, and the other not, would show that the PP person should have a higher amount of their money in the portfolio, or that the other portfolio should include all that cash off to the side.

If you include that cash that all investors actually hold, the returns on the cash-included total portfolio value of many common ones become much worse compared to the PP. For example, here's a standard 60/40 portfolio that's been modified to be 25% cash 75% 60/40. In other words, 25% cash, 45% stocks, 30% total bond market. PP in blue, other portfolio in red:

[img width=600]http://i.imgur.com/9mNlCGa.png[/img]

The PP wins!

So no, you don't need a separate cash emergency fund.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by mathjak107 » Sun Jul 05, 2015 3:56 pm

i like those on forums who brag about their market returns . but then they only have  10 or 15% of their money in markets and the rest is in cd ladders.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Desert » Sun Jul 05, 2015 4:01 pm

Pointedstick, that's a great point. 

I do dare you to do one thing though:  Post the above chart once more, but start it in 1975, the year it became legal to own gold in the U.S.  It'll be interesting, I promise.   
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Pointedstick » Sun Jul 05, 2015 4:11 pm

I already did, but decided not to post that chart, for obvious reasons. :) This realization that the portfolio more or less consists of only the 75% non-cash components has been a revelation to me. I don't want that portfolio to be 1/3 each in stocks, long treasuries, and gold. At the moment I am furiously trying to decide how I will alter my portfolio. Probably not much, but I don't think I'll be able to resist throwing in SCV and international stocks.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by MachineGhost » Mon Jul 06, 2015 12:50 am

Funds, ETF or mutual funds, for cash are a very bad idea.  The management fees are higher than the interest earned.  It's a negative proposition you must refuse!
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Tyler » Mon Jul 06, 2015 1:06 am

Desert wrote: I do dare you to do one thing though:  Post the above chart once more, but start it in 1975, the year it became legal to own gold in the U.S.  It'll be interesting, I promise. 
I'd still take the PP.

[img width=300]http://s16.postimg.org/9ml43bkxh/60_40_cash.jpg[/img]
Last edited by Tyler on Mon Jul 06, 2015 1:14 am, edited 1 time in total.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Dieter » Mon Jul 06, 2015 1:09 am

Cash for taxable - I think "official" is to use T-Bills, but Many (most?) keep at least part in savings accounts (online & local), CDs, - rates are better, almost as safe - just keep the account at a given bank under $250,000 to be insured (Would love to have that problem.... :)

Also I-Bonds and E-Bonds.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by Pointedstick » Mon Jul 06, 2015 4:33 pm

MachineGhost wrote: Funds, ETF or mutual funds, for cash are a very bad idea.  The management fees are higher than the interest earned.  It's a negative proposition you must refuse!
Right; if you want to do that, you need to use a very low-expense fund and go out on the yield curve a few years, which I think most of us are doing at this point. SHY is net-positive, for example, and IMHO offers negligibly more risk than something like BIL.
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Re: If I go PP, do I still need a Cash Emergency Fund?

Post by LC475 » Mon Jul 06, 2015 4:36 pm

Pointedstick wrote: I don't want that portfolio to be 1/3 each in stocks, long treasuries, and gold.
Why not?
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