Gyroscopic Investing

Could I trouble you'all with a quick question? If you had a modest nestegg to invest, but also wanted to use those funds as "bridge money" to facilitate the transition from an ultra-high-maintenance property to something a bit more manageable, would you go ahead and invest in the PP, knowing that you might, at any time, need to cash out the majority of it if the perfect property came up? I'm guessing it could be another year or two before I might find a suitable property (a/k/a the "geriatric homestead"), and that it could be anywhere from 6 months to a year before my old property sells and the funds go back in the PP for the long term. The money is currently parked in Vanguard's Treasury Money Market Fund. Any advice would be both valued and appreciated.

Personally I wouldn't bother with a PP for that short of a time frame, I'd put it in Treasury bills or a CD or something like that. That's what I did when I was about to buy a house.

Funds you need for 6 months to 1 year should be safe and liquid. Keep it in your Vanguard Treasury money market fund.

Thirded. Treasury money market yield must be on its way down, and I still think it’s the best place for short term cash. Gold, stocks...you don’t want to have to mess with those in just six months, or even twelve.

And good luck by the way!

+1

Well, then, that's just what I'll do! Thank you so much.

jhogue wrote: ↑Fri Jun 28, 2019 7:09 pm Funds you need for 6 months to 1 year should be safe and liquid. Keep it in your Vanguard Treasury money market fund.

+1

Yup. Keep in the treasury MM, that's the perfect place for it. I think the rule of thumb is not to invest if you plan to spend the money within 5 years, but for the PP I'd consider a time horizon closer to 3 years due to its stability - as long as you're prepared for potential tax and fee consequences when you cash out.

Good luck with your property acquisition!

Tangent comment. A gentlemen I very much respect on another board who was a former hedge fund manager is very negative on bonds as an asset class primarily because in a lot of the world they return very little or you lose money holding them. Additionally, he has mentioned there are serious structural issues with bond ETFs. (Note: He is not a doom and gloomer at all by temperament.) His recommendation is to not hold commercial bond ETFs at all and he recommends holding treasuries vs treasury ETFs due to potential misdirected blow back of a negative bond event should occur.

He's a die hard value investor and actually thinks bonds of any kind, currently, are not a good investment.

Kbg wrote: ↑Wed Jul 17, 2019 8:59 am (Note: He is not a doom and gloomer at all by temperament.)
He's a die hard value investor and actually thinks bonds of any kind, currently, are not a good investment.

If someone opines "bonds of any kind are not a good investment" completely out of the context of the needs of the individual investor, that puts them squarely in the tinfoil hat brigade. How could you lump 30-day T-Bills and Junk Bonds and Emerging Market Bonds, and MUNIs together and just call them all "BAD"? C'mon.

ochotona wrote: ↑Wed Jul 17, 2019 10:20 am

Kbg wrote: ↑Wed Jul 17, 2019 8:59 am (Note: He is not a doom and gloomer at all by temperament.)
He's a die hard value investor and actually thinks bonds of any kind, currently, are not a good investment.

If someone opines "bonds of any kind are not a good investment" completely out of the context of the needs of the individual investor, that puts them squarely in the tinfoil hat brigade. How could you lump 30-day T-Bills and Junk Bonds and Emerging Market Bonds, and MUNIs together and just call them all "BAD"? C'mon.

Yea, it depends on the context. But if he was talking about "a lot of the world" then maybe that's what he meant.

Kbg wrote: ↑Wed Jul 17, 2019 8:59 am Tangent comment. A gentlemen I very much respect on another board who was a former hedge fund manager is very negative on bonds as an asset class primarily because in a lot of the world they return very little or you lose money holding them. Additionally, he has mentioned there are serious structural issues with bond ETFs. (Note: He is not a doom and gloomer at all by temperament.) His recommendation is to not hold commercial bond ETFs at all and he recommends holding treasuries vs treasury ETFs due to potential misdirected blow back of a negative bond event should occur.

He's a die hard value investor and actually thinks bonds of any kind, currently, are not a good investment.

To be fair, how does one "value" a bond in this day in age with such large, drastic, and never before seen central bank intervention? I'm using the assumption here that most "value" investors I know of look at things in a traditional sense. And there is no traditional precedent for what is going on in the world right now. So I personally would not put any weight into his views of whether or not bonds are a good investment at this point in time. Because, to be fair, nobody knows whether or not bonds are a good investment at this point in time. I mean, there are now junk bonds in the world that are negative yielding. Common sense left the building long ago. And current hedge fund managers these days in aggregate are about as bullish on bonds as they can get, so his qualifications don't uniquely qualify his view.

His structural concerns on ETF's might be something worth considering though, as he probably does have more knowledge than any of us on that matter. Is he concerned about something like another "breaking the buck" kind of debacle in bond ETF's? Where the ETF's drop more than the underlying because of mass hysterical selling? Does his concerns also stand for mutual funds or just ETF's?

Not sure I can really answer these questions to everyone’s satisfaction.

Structural...illiquidity of the underlying bonds in the ETFs that could cause a serious price dislocation if the ETF has to sell quickly and heavily due to redemptions. Many bond ETF’s daily trading value greatly exceed their underlying portfolio value. I’m not going to go into it here, but if you understand how large scale ETF share blocks can be created and redeemed for the underlying then this issue isn’t difficult to understand.

Returns and value...your critique is exactly his point. Some math is easy. Notional example. inflation 2%, bond yield -.5%, real return is a guaranteed -2.5% and thus there is really no rational economic reason to purchase these bonds. (Och, you inferred a lot of things I never said about bond quality types)

In reaction he recommends a couple of things.

- if you can ride out the volatility, buy/hold something that has a better chance of providing an actual real return over a longer period of time (he’s written about several options one could do here. One example, buy WFC-L preferred)

- hold cash, not bonds. Simple math again...lose “only” 2% vs 2.5% per year

- if you are going to hold bonds, then hold US treasuries only

- he’s a big non-fan of LT bonds of any sort

As mentioned, his perspective is as a value investor and he sees very low or negative value with the vast majority of bonds these days. mathematically his argument is as bulletproof as it gets. Using the latest inflation and 10Y T yield data and assuming no inflation changes for 10 years you are locking in a 1.1 real return. His view would simply be, if that’s your hold period you could do a lot better with other options that are relatively safe.

He’s not a huge fan of US stock index funds either for valuation reasons (at this point in time).

Anyway, just sharing a perspective from a guy I respect who isn’t selling something.

Very relevant to our tangent and what I just posted on. Normally I wouldn't post anything from this source, but hey, it's an excerpt from someone else...

https://www.zerohedge.com/news/2019-07- ... ell-stocks

Maybe I should have posted this in the Gold part of the forum.

Haha, well that's not the typical Zero Hedge article. They just basically shared Dalio's post on LinkedIn.

There are potential structural issues with any ETF. I personally would rather hold individual assets where possible, but sometimes you just can't avoid it. By the same logic you would also avoid stock ETFs.

Maddy, please don't worry about Vanguard's Treasury MM. It is 99% 1 month T bills, so it's sort of like a crowdsourced 1 month T bill with autoroll, all automated for your convenience and with extremely low overhead. There's very little room in there for playing games.

If you want to avoid the 0.09% expense ratio, you could put part of the money directly into T bills. Or into a CD. Which will require predicting when you might be using the cash, because it's not worth doing that if you have to sell before maturity.

+1 on Sofie’s comments. You don’t need to sweat a Treasury ETF/MMF IIRC US treasuries are the largest single market on the planet.